Automakers warn of up to 45% sales drop as economy slumps due to pandemic; seek govt help in crisis

The auto industry is already reeling, with sales of cars, SUVs, trucks and motorbikes falling 18 percent last fiscal year to 21.5 million vehicles due to an economic slowdown.

Reuters May 12, 2020 06:32:21 IST
Automakers warn of up to 45% sales drop as economy slumps due to pandemic; seek govt help in crisis

New Delhi: Automakers have warned that total automobile sales could fall as much as 45 percent in the current fiscal year in a worst-case scenario as economic growth slumps due to the COVID-19 pandemic, and they are seeking government help through the crisis.

The Society of Indian Automobile Manufacturers (SIAM), an industry trade body, told government officials last week that if the economy contracts by 2 percent in the year starting 1 April, sales of cars, trucks and motorbikes could decline by as much as 45 percent from a year before.

SIAM presented two more scenarios to the government--one where the economy grows by 2 percent-3 percent, which would lead to a 20 percent decline in auto sales, and a second where growth stagnates from last year, resulting in a 35 percent decline in sales.

The trade body represents most major automakers in India, including Maruti Suzuki, Tata Motors, Mahindra & Mahindra, Hero MotoCorp and the local units of Toyota Motor, Hyundai Motor, Ford and Volkswagen.

Automakers warn of up to 45 sales drop as economy slumps due to pandemic seek govt help in crisis

Representational image. CNBC-TV18.

Global consultancy McKinsey & Co estimated in April that if the lockdown was extended until mid-May, the economy could shrink by 2 percent-3 percent in the current fiscal year, while rating agency Moody’s said on Friday the country could see 0 percent growth.

The auto industry is already reeling, with sales of cars, SUVs, trucks and motorbikes falling 18 percent last fiscal year to 21.5 million vehicles due to an economic slowdown. The pandemic, which has seen businesses shuttered and people told to stay at home all over the world, is set to make things worse.

If the combined decline over two years is 40 percent-45 percent, it could push auto sales numbers to their lowest level in a decade, SIAM’s president Rajan Wadhera told road transport ministry officials, according to the recording of a web conference they held last week.

During the meeting, auto industry executives sought tax cuts, a one-year delay in implementing certain safety and fuel efficiency regulations, and loans at low interest rates to help the sector revive production and prevent layoffs until sales and revenues pick up.

“The biggest problem we are facing right now is cash flow liquidity,” Mahindra & Mahindra managing director Pawan Goenka, a former president of SIAM, said during the meeting.

Nearly all automakers recorded zero domestic sales in April after the government imposed a nationwide lockdown on 25 March to control the spread of the coronavirus. Since 4 May, it has allowed some economic activity to resume in places where there are zero or few cases of people being infected.

While a handful of companies like Maruti and Hyundai either plan to or have restarted production, many automakers are still waiting for supply chain disruptions to settle and signs of demand to return before they start manufacturing.

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