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Reinventing the Wheel

India's $120-billion automobile industry will see lower factory output, greater consolidation among suppliers, digital showrooms and simulated test-drives
twitter-logo Sumant Banerji   New Delhi     Print Edition: May 31, 2020
Reinventing the Wheel
Illustration by Raj Verma

The world's greatest health emergency in over a century, the coronavirus pandemic, will in its wake cause widespread changes in India's automotive landscape. As factories across the country look to resume operations after a shutdown of more than 40 days, the challenges are multifaceted.

In over a month, the world has changed drastically. To avoid the virus from creeping into shop floors of factories, the corner room of offices and the mezzanine floors of showrooms are taking precedence over revenue, bottom line, productivity and market share.

The most visible impact will be in dealerships, workshops and showrooms. Already, the trend of digital showrooms and online sales has taken off, and the industry believes it will only accelerate as consumers shy away from visiting dealerships. Doorstep delivery and service, along with test-drive simulations, will be the new normal.

Virtual Showrooms

This will potentially change the business model of vehicle dealerships. The need for giant showrooms with multiple cars on display and sizeable parking lots for test-drive vehicles may become history.

"New business and retail models will emerge. Now you don't need massive showrooms like we used to," says Kavan Mukhtyar, Partner and Leader, Automotive, PwC India. "Small retail formats will pick up momentum."

According to a survey by Capgemini Research Institute, 70 per cent Indians want to avoid dealership visits to compare financing and deals, against 46 per cent globally.

Companies, including Honda, Hyundai, MG Motor, Toyota, Skoda, Ford, Jeep and luxury carmakers like BMW and Mercedes have already started innovating in this area. Jeep has, for example, created a platform where the customer can research, book, order a test-drive, negotiate a deal, customise the vehicle and make the final payment through the website without going to the dealership even once.

"The touch-free retail experience is designed to enhance convenience for customers. Physical distancing has become the new normal, and our approach is to ensure customers as well as our staff are well protected," says Partha Datta, President and Managing Director, FCA India.

Shift from Public Transport

The pandemic could spur demand for private car usage as consumers shun public transport for fear of contracting the virus. "Based on expenditure share, buses and trams are used for 58 per cent of travelling by urban households and 68 per cent by rural households," says Kumar Rakesh, Auto Analyst, BNP Paribas India.

The nascent electric vehicle industry may bear the brunt as companies conserve cash and prioritise spending.

"The overall auto sector hasn't been performing well and the current Covid-19 outbreak has further exacerbated the situation. Electric mobility is also not insulated from this impact," says Shekar Viswanathan, Vice Chairman and Whole-time Director, Toyota Kirloskar Motors

Vehicle Subscriptions

The concept of vehicle ownership itself is likely to change as subscription models and car-leasing, where a consumer pays for using a car monthly or semi-annually without actually owning it, gain ground.

Zoomcar, which provides vehicles for short-term self-drive and long-term subscription plans, says almost 25 per cent of its business comes from subscriptions, which is likely to grow manifold in the future. The start-up has seen investments from companies, including Mahindra Group. Similarly, Hyundai has invested in rival firm Revv.

"We anticipate a significant increase in car subscriptions post Covid-19, as consumers look to avoid public transport without the burden of car ownership," says Greg Moran, Co-founder and CEO, Zoomcar.

Inside Factories

At the manufacturing level, the impact of the pandemic will be restricted to the need for maintaining proper social distancing norms. Fewer number of workers at shop floors will become the new normal, which would mean productivity taking a hit. To start off, most factories are not likely to produce more than 25-30 per cent of their peak capacity.

"We have reviewed all our processes and aligned it with the social distancing norms of the government. For example, in powertrains, where engines are being assembled, people normally work in close proximity. Now, the distance would have to be five to six times more. This will obviously mean lower volumes," says Rajesh Goel, Senior Vice President and Director, Sales and Marketing, Honda Cars India.

For manufacturers with bigger scale and deeper pockets, this may not be a problem in the short-term as demand for vehicles is expected to be low in the near future. The challenge is bigger for smaller ancillary units that supply components and parts to be assembled by the likes of Maruti, Hyundai, Tata, Honda, Toyota or Bajaj.

"It will be tough for small Tier II and III component suppliers. Maintaining social distancing on the shop floor would mean a fall in output and it will become a matter of survival for the fittest. There will be increased consolidation in the industry," says Deepak Jain, President, Automotive Component Manufacturers Association.

The $120-billion industry is, indeed, bracing itself for life post-Covid.

@sumantbanerji

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