A SCREECHING HALT
Crisis in the automobile sector has been making headlines for a few while; now, this continuous slump in sales has crippled the entire value chain of the industry – from suppliers to manufacturers, all are embedded in this BREWING FINANCIAL catastrophe
In India, the automobile sector, for the longest time, has been the fastestgrowing industry as well as a most essential driver of the manufacturing sector. Apart from its contribution to GDP of our economy, it has also been generating employment for many – it accounts for almost 50 per cent of manufacturing gross domestic product, 15 per cent of goods and services tax (GST) and employs 37 million people directly and indirectly, asserted Rajan Wadhera, President, Society of Indian Automobile Manufacturers (SIAM) President. Apart from acting as an Original Equipment Manufacturer (OEM), the automobile industry also links various other engaged sectors – tyre manufacturing, steel manufacturing as well as in the tertiary sector.
But, since the last 12-14 months, the automobile industry has been hit hard and bad by an amalgamation of unwanted factors. It has been on a downward slump, and as per the July records for passenger vehicles (PVS), all prominent manufacturers have been hit by the slowdown. Maruti Suzuki’s sales has dipped 36.3 per cent, Honda cars by 48.67 per cent, Tata Motors fell by 31 per cent and Hyundai has suffered a 10 per cent setback – recording the lowest sale of vehicles in nearly two decades. Slumping sales have not just affected the car manufacturers across the country but also the motorcycle manufacturers. The slowdown has forced the industry to reduce production as well as drastically downsize its workforce to minimise the financial damge.
When contrasted with numbers of the previous year, there has been a 26 per cent drop in car sales and an 8 per cent decline in overall car production. In 2017-18, sale of four-wheelers was growing at 14 per cent, whereas two-wheelers’ sales were at 15 per cent. But this fiscal year, these numbers are down to 5 per cent each. Keeping reasons for the slowdown aside, we will shift our focus to the other engaged sectors that have/will face the whammy sooner or later.
A dejected Rafiq said: “We have already been burdened by our declining salaries in the last few months. But now, with the termination of our contracts, most of us are failing to meet the minimal financial burden of the city and are leaving for our villages. There is no authority who we can take our concerns to and it seems we are nearing doomsday.”
Such has been the fate of Rafiq – a contractual worker at a renowned tyre brand factory – and many others. He moved to the capital with his family from Muzzafarpur, Bihar, in 2016 in search of better
living. Last month, along with 72 others’, Rafiq’s contract was terminated unconditionally without prior notice and their families were
left in despair. Rafiq’s family comprises his two daughters, wife and mother. Being the only breadwinner in the family, Rafiq now works at as an apprentice in a welding shop in South Delhi at a meagre rate of 120 per day. Tyre companies are possibly the worst hit by the auto sales slowdown. Not only has the demand dropped but it now has taken the shape of a multi-faceted problem that shows no signs of assuage. First, most workers in rubber factories are on contracts and without prior notice, many such contracts have been terminated. Mostly belonging to the lower strata, this group of people is now left helpless and aid seems elusive. Second, rubber prices have been on a rise since the first quarter of the ongoing fiscal year – marking a positive result for the farmers. But tyre companies are now left in the midst of deep uncertainty with a rise in rubber prices and parallel fall in demand for final products. Rafiq’s sentiments echoed across corners. This has been the fate of many such contractual workers across the country. In the replacement market, the demand for tyres hasn’t yet been affected but with the decline in auto sales, there has been a sharp fall in demand from OEMS. Due to the sluggish demand,
leading manufacturer, Apollo, halted its production across various factories
last week. Manufactures believe that the festive season around the corner aided by some proactive steps from the government could revive auto sales alongside assisting related sectors. Despite agreeing to the great fall in the sales’ numbers, most companies have denied any termination of their worker’s The auto component manufacturers have found themselves fighting the slowdown with lower utilisation of existing capacity contracts.
“The tyre sector is directly linked to the auto sector and has also been impacted by the slowdown. Although the replacement demand had somewhat cushioned the impact initially, particularly for commercial vehicles, the recent months are showing worrisome signs,” said Rajiv Budhiraja, director-general at Automotive Tyre Manufacturers Association (ATMA).
Along with tyres, many other players have also been affected by the auto sales dip. This includes several smaller component making industries like nuts and bolts, horns, paint companies, etc. According to Demand slowdown will curtail tyre industry’s revenue growth to 3-4 per cent in 2019-20, and margins are only expected to decline further
Rubber prices have been on a rise since the first quarter of this fiscal. Tyre companies are now left in the midst of deep uncertainty with a rise in rubber prices and parallel fall in demand for final products
TOTAL MONTHLY DOMESTIC PRODUCTION OF NATURAL RUBBER IN 2019*
various auto-component manufacturers, despite a cut in their production by 40 per cent, there hasn’t been any loss of job yet. But the ground reality varies. Insiders here believe that the prime reasons behind the slow down are high GST rates, the unrealistic approach of the unified taxation system and also the rise in sale of e-vehicles.
The auto-components industry contributes 2.4 per cent to GDP and is also home to approximately 50 lakh of the nation’s workforce. Given the current scenario, Automotive Component Manufacturers Association of India (ACMA) stated that the ongoing crisis would require a cut in the workforce by at least 10 lakh. Though the problems had started in the third quarter of the last fiscal, manufacturers
have only realised the urgency in the last three months. They still believe that no jobs are being lost, but then, what about the migrants like Rafiq who are now barely managing a meal a day to sustain?
The small and medium scale industries depending on OEMS are now facing a major crisis with a demand decline of almost 30 per cent. According to data released by Federation of Automobile Dealers Associations (FADA), there has been a cut of nearly 2 lakh jobs in the last three months. On the other hand, the auto industry body, Society of Indian Automobile Manufacturers (SIAM), has stated that almost 15,000 jobs, specifically in the automobile manufacturing sector, have been lost over the last two or three months. These workers mostly belong to the casual workforce category.
In this scenario, Finance Minister Nirmala Sitharaman blaming millennials for the slowdown seems to reduce the crisis pervading the sector. According to the Union Minister, “This sector, in particular, has been affected by several things such as the BS-VI movement, registration fee matter and the mindset of millennials. Studies show that millennials prefer not to commit to an EMI and instead prefer having Ola or Uber or taking the metro.”
Are we millennials responsible for the slow down? A paradox is playing out in India’s job market: the more educated one is, the more difficult it is to get hired. If the government’s Periodic Labour Force Survey (PLFS) is evaluated, unemployment rate is at a 45-year-high and is highest among youth with education until diploma (37 per cent), graduation (36 per cent) and post graduation and above (36 per cent), suggesting the absence of a skilled workforce. We millennials are then responsible, not by active agency, but by a compulsion of circumstances.
The road ahead is unlikely to be smooth for the automobile industry. Given the existing crisis, there is also another challenge of migrating from BS-IV to BS-VI, and manufacturers are expected to bear a larger part of the transitional expenses. Domestic sales is already ailing, falling every month – from 8.62 per cent in May 2019 to 23.55 per cent in August. The government has now slashed corporate taxes to 25.17 per cent, inclusive of all cess and surcharges, for domestic companies. Manufacturers will now have more investment for festive offers and if not a revival, they can at least expect to bring down the rate of decline in sales.