2020 - The Year Like None Before
<p style="text-align: justify;">2020, the year like none before, caged humanity and made it endure the first-ever universal LOCKDOWN – impacting the very existence on planet Earth.</p><p style="text-align: justify;">How are we going to remember 2020 - a year only experienced once, so far? Maybe, we will not forget it for all the singular moments that arrive behind a <a href="https://auto.economictimes.indiatimes.com/tag/pandemic">pandemic</a>’s deadly waves. The rest of the memories of the year, unhinged to the pandemic, would possibly wither away as the years pass by. But, for sure, it would rarely be remembered for Trump’s embarrassing presidential defeat or China’s invasion of a foreign land or <a href="https://auto.economictimes.indiatimes.com/tag/brexit">Brexit</a> or Beirut blast-wiping off an entire enclave.</p><p style="text-align: justify;">Our minds remained infected with the word ‘Corona’ for every moment of the year gone by, and the only numerals people got used to talking about were the infection and mortality rates. All other life-sustaining measures such as GDP growth, Interest rates, Inflation, capital market swings or the new cars in the market seemed much less relevant.</p><p style="text-align: justify;">The auto industry had an apocalyptic fall worldwide. India reported its first-ever near ‘0’ sales in April. As if, the virus-menace was not enough to freeze our spirits, we got battered by a series of natural and man-made events - the terrifying possibility of a war with a much stronger neighbour, massive swipe by locusts over half-of our agricultural fields denting the crops severely, multiple cyclones hammering our coasts, an unprecedented humanitarian crisis of reverse-migration and unrest in the capital – all shattered public-sentiments to pieces.</p><p style="text-align: justify;">Can a doom’s day be ever worse than this! Nowhere the auto sector can thrive with so much of negative sentiment prevailing around. The western world declared the situation most worrisome for us - a gloom of liquidity winter knocking on our doors and a possibility of end-of-road for the Indian automobile growth story. Every automobile pundit would have predicted the imminent demise of many vulnerable companies in India in case of prolonged misery.</p><p style="text-align: justify;">Nevertheless, here comes a turnaround story. The pandemic mortality rate is contained better than in most other major economies; foreign capital is flowing in - creating liquidity and lowering interest rates to a decadal low. India has surprised the world with a rapid recovery in the auto sector matching V-shaped trajectory in several segments.<br /><br /></p><p style="text-align: justify;"><strong>Domestic Sales – India</strong></p><p style="text-align: justify;"><strong>The beginning!</strong><br /><br />Though expected to open with the excitement of Auto-Expo 2020, the year commenced its journey on a very low key under the cloud of Covid19. The event still had a footfall of 0.6 million visitors. However, China’s absence on the show floor was a bit of an anti-climax. Regardless, over the years, the biennial event has been losing its sheen and has not been patronised by some big brands due to its low effectiveness in brand-building.<br /><br /><a href="https://auto.economictimes.indiatimes.com/tag/bs-vi"><strong>BS-VI</strong></a><strong> - the highest emission norm - a non-event!</strong><br /><br />Lockdown thundered like a sudden bolt from the sky towards the financial year-end. It caused huge anxiety among OEMs and dealers who were trying to sneak in the remnant BS-IV motors before the mandatory BS-VI came into force on April 1. Despite the Supreme Court providing temporary relief to enable the industry to dispose-off the stranded stock, it did cause some financial loss and inconvenience to a few. BS-VI from April was a non-event as other concerns were pounding our world more severely. A great moment, for publicising a move for cleaner air and a major milestone crossed by the nation in a very short period, got completely lost amid the pandemic crisis.<br /><br /><strong>China played spoil-sport</strong><br /><a href="https://auto.economictimes.indiatimes.com/tag/supply+chain"><strong>Supply chain</strong></a><strong> risks heightened</strong><br /><br />In May, we had to wrestle with hostilities on the Ladakh border mounted on us by China – unprecedented and treacherous in the middle of a pandemic. This one event changed everything about the India-China relationship. The cry for boycotting China and securing our supply chain became very intense. Indian auto industry is rummaging through its resources to resolve it. Going back to business-as-usual with China can’t be a prudent choice. India’s industrial fortune possibly lies in detaching and decoupling with China as quickly as possible. It may sound cynical and impractical, given our dependence on China on multiple fronts.<br /><br /><strong>Investment exodus demanded</strong><br /><br />China’s boisterous posturing in several geopolitical areas simultaneously made the world rethink its long-term alliance with China. Several world brands are reworking their plans to invest outside China or even shift out entirely. India is demonstrating its firm intention of benefitting from it by incentivising the shift. Let us see if investment in the auto sector sees some light in 2021.<br /><br /><strong>Great Wall in India not welcomed</strong><br /><br />With China still on the prowl, its <a href="https://auto.economictimes.indiatimes.com/tag/investments">investments</a> are not as welcome as before in the Indian corridors. Indeed, the Chinese corporations’ dream of creating a significant foothold in India will be on hold until a sustainable trust is restored. BYD, Great Wall, SAIC, Gilly, among others, have slowed down on their plans in India.<br /><br />A hastily done MoU with Great Wall in Mumbai, on the day after the Galwan clash, was reversed within a week with the ban on the auto-approvals of direct investments and indefinite suspension of current MoUs (including Foton PMI). These had embarrassing consequences for the China-coterie in India. This decision is unlikely to be reversed till the conflict is settled.<br /><br />China’s domestic demand being on a high and likely to reach 30 million by 2025, it may not be so compelling for the Chinese auto companies to be desperate in their India plans.<br /><br /><strong>A new Korean rises in India</strong><br /><br />Toyota, Honda, Nissan, and Isuzu have been experiencing diminishing presence in India, opening the space for more agile companies like Korea’s Kia. Kia saw a commendable rise in India with huge brand-equity appreciation. The fortune of many Japanese companies has been dwindling for quite some time. Their exit would augur well for the European and Korean companies such as Skoda, Peugeot, Hyundai and Kia.<br /><br /><strong>Art of giving - the spiritual virus!</strong><br /><br />The entire auto world pivoted itself to making masks, PPE kits and direly needed ventilators restoring faith in humanity. New health-soldiers from the sector defined the year for them by turning ‘saviours’ from just being ‘movers’. Suzuki, Tata, Mahindra, Hinduja, Munjals, and several others liberally donated large sums of money and managed supply chains of food packets and rations for the needy. Finally, the automotive world had a larger life-moto. Can our sector integrate more humanising goals at the centre of its development during normal years as well?<br /><br /><strong>Ola! no Uber act for now!</strong><br /><br />Ouch, millennials had just begun moving away from owning a car – instead, an overseas holiday or an expensive hobby was being pursued - till a tiny virus punctured our Uber-Ola-cab-world. Personal mobility is back once again. One more market innovation will need to win back the lost users by reviving the philosophy of ‘renting over owning a car’. Whether it remains a trend or a quirk – only the public sentiments will determine post-pandemic.<br /><br /><strong>The industry spinned!</strong><br /><br />Every crisis brings an opportunity for some to exploit and harness it. Some of the great names in the Indian <a href="https://auto.economictimes.indiatimes.com/tag/automotive+industry">automotive industry</a> were quick to rationalise their resource utilisation and enhance their cost structure, while some others showed their not-so-human colours and resorted to the premature announcement of salary cuts, delays in annual benefits, etc. The leadership was tested to the hilt, and the Indian management’s vulnerability to the crisis did get exposed.<br /><br />It’s time for all the companies to examine their character, behaviour, value system and posturing during a crisis, as the situation tends to repeat itself. Will they be better prepared and not let their stakeholders feel alienated and abandoned? Many like M&M, Hero Motors, TVS, Suzuki stood by their workforce, dealers and vendors through thick and thin and did not resort to knee-jerk reactions.<br /><br /><strong>Ban, protect - the government went in overdrive!</strong><br /><br />The industry was quick in demanding for GST cut. The government did not pay heed to the calls for an auto-specific stimulus. However, it did expose the exploitative mindset of certain fringe elements every time a crisis comes. What company reserves and surpluses are meant for! Some industry leaders like Ratan Tata and Mahindra did not support the demand, and others like RC Bhargava of Maruti opposed it. The Indian automotive industry needs to build on resilience, dignity, and courage to contribute rather than running to the government on the slightest whiff of headwinds.<br /><br />However, the government took measures to protect the component industry against cheap dumping by China – curbing the import of all non-essential tyres is just one of these. It finally announced a PLI (Production Linked Incentive) scheme which is being well-received. It is up to the industry to combine the benefits and exploit it for going global.<br /><br /><strong>Happenings around the auto industry</strong><br /><br />Tata Motors, a non-dividend-paying (5 years in a row) company, finally decided to go debt-free with a negative mark on EPS. Watch out for its fortune either turning around or gradually slipping into oblivion over the next decade. Currently, PV business is on a roll, and finally, Indians are beginning to respect and like the T-Cars.<br /><br />The ambitious Mahindra, initially known for its tractors and Jeep, having burnt its hands on 2W to heavy truck business, has finally begun to divest its defunct and non-strategic businesses (SsangYong, being the first one). Watch out for what more it sheds off and how it grows its EV business. Mahindra, a great Indian conglomerate, needs to focus on a few and not spread its resources too wide in non-core areas. Seems, the change of guard at the top is leading to a different financial-prudence. The second divorce with Ford may not be that bad a thing happening to Mahindra.<br /><br />Daimler India begins a new investment cycle – fulfilling a promise of having a marathon in India.<br /><br />It’s high time for Ashok Leyland Ltd (ALL) and Tata Motors Ltd (TML) to re-strategise and work on securing their dominance; the classical approach may not hold good for long.<br /><br />Harley in Hero’s lap– Royal Enfield, Bajaj and Hero, all show signs of moving towards premiumisation and high-end bikes. Increasing per-capita income will create a huge market for big-beasts in India.<br /><br />Tesla is coming –Will it begin a new era? Considering its premium pricing, will it boost the people’s aspirations toward owning EVs and lead other OEs to invest more in EV product developments?<br /><br /><strong>Missed opportunities</strong><br /><br />The much-awaited scrappage policy is still in the making, though it was announced five years ago. Hope, 2021 gets a glimpse of it.<br /><br />Wait for disruptive technologies and disruptors got longer, especially, the EV switch. e-Buses took a hit with the mass-transit system crashing.<br /><strong>Major emerging trends</strong> <strong>A world of less ravel!</strong><br /><br />With shared/mass-transit system travel falling drastically, its direct impact is being felt on the sales of buses, sedans vans, 3Ws and cab-hatches/sedans. Some have even predicted the demise of 3-wheelers in India. Pent-up demand in all these dormant segments is bound to peak post-vaccine times - in India; everything is immortal.<br /><br /><strong>Digital premieres and virtual showrooms are in vogue</strong><br /><br />Showroom glamour will decline in the times to come freeing up dealerships of the burden of expensive assets. The asset-light dealerships will be required to adapt to Artificial Intelligence-based human interactions to stay relevant in the value chain. The workshops, though much less needed, will transform to adjust to doorstep services.<br /><br /><strong>Move on 3-Box - 2-Box is bigger!</strong><br /><br />The 3-box sedan offerings have fallen to an all-time low in the past few years while compact SUVs have become real cheese to have. With sedans share reduced to 10%, it is hatchbacks (45%) and SUVs/MPVs (45%), destined to dominate our expressways.<br /><br /><strong>‘Twice-a-day’ biometric attendance to WFH</strong><br /><br />From a robust hierarchical attitude of keeping subordinates on the finger next-door to empowering them to work from home (WFH), is one of the biggest cultural changes the industry is witnessing. It should help bring in more women to the workforce. We need to watch out for the fallouts on efficiency and employee morale.<br /><br /><strong>Technology quotient is climbing up</strong><br /><br />Despite its Chinese patrons and ahead-of-time products, MG Motors has done remarkably well by taking a technology-leadership position by introducing internet-enabled cars. With the automatic version sweeping over even the mini-cars, it’s a more-car-per-car moment for India. Watch out for newer technology benchmarks and premiumisation in India over the next 2-3 years.<br /><br /><strong>2020 have left questions which 2021-2022 will have to answer</strong><br /><br />The industry has had its share of ‘ouch’ moments and well-poised for ‘aha’ moments. Hopefully, it will find answers to multiple challenges lying ahead.<br /><br /><strong>1. Global ambitions</strong><br />Do the Indian auto business houses have the intention and adventurism to reimagine their world rankings or will they stay glued to the classical domestic demand alone? Has the pandemic concretised their ambitions or dissolved their dreams? Can they dance as a family in other continents more handsomely than the Dragon? Or will it continue to be lonely, adrift and marooned in India only?<br /><br /><strong>2. Was there an aha moment?</strong><br /><br />In the year that seemed to alter the passage of time, an afternoon or a month could go by practically unnoticed, and all the familiar forms of celebration fell off-limits. What is that the auto industry will still celebrate from 2020 – its humanising factors, prudent business decisions of cost reduction or being decisive about salary cuts and workforce reductions, maintaining margins at all cost? Will it alter the passage of time in any way?<br /><br /><strong>3. What would a full transition out of pandemic mean?</strong></p><ul style="text-align: justify;"><li>A return to pre-Covid-normalcy (no normalcy is ideal in a dynamic economy?</li><li>Humanising the business – humans at the centre of each act of the corporation</li><li>An ambitious international sojourn of Indian auto conglomerates to take higher market positions and control supply chain (more Bharat Forge and Motherson-Sumis on cards?)</li><li>Is hard-fought progress of the industry self-sustaining or still dependent on external stimulus. What vaccine would the auto community need to become immune to undesirable events?</li></ul><ol start="4"><li style="text-align: justify;"><strong>Supply chain control</strong><br />The auto industry seems to be embracing “Vocal for Local” seriously. Never before had it felt so much the need to be self-reliant and to secure commodity cost fluctuations. Will the localisation up to the commodity level go up or remain static next year?<br /><br /></li></ol>
KR Expert - Dinesh Kumar Jain
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