COVID-19: Auto companies suspend production; sales, exports to be hit

Maruti, Hyundai, Toyota, Hero MotoCorp have temporarily halted production

auto-sector-rep Representative image | AFP

The COVID-19 pandemic is set to hit the automobile sector—already reeling due to low demand—hard as large parts of India go into a lockdown till at least March 31. Many auto companies, which had enabled work from home for their office employees, are now also suspending production at most of their manufacturing plants in India and elsewhere.

Maruti Suzuki, the country’s largest car maker, is shutting production and office operations at its facilities in Gurugram and Manesar with immediate effect, till further notice. The company’s research and development (R&D) centre at Rohtak will also remain closed, it said.

Hyundai, the country’s second largest passenger car maker, said it would suspend its manufacturing operations at the Chennai facility from Monday (March 23) till further notice to stop the spread of coronavirus.

Toyota Kirloskar Motor, too, has temporarily halted production at its plant in Bidadi, Karnataka till further announcement.

Furthermore, it has expanded ‘work from home’ for all its employees in its regional Strategic Business Units in Delhi, Mumbai, Kolkata and Bangalore.

On Saturday, Tata Motors and two-wheeler maker Bajaj Auto had said they would close manufacturing plants in the Pune region, after the Maharashtra government had announced a near complete lockdown in the state.

Other two-wheeler companies, too, have suspended production. All the four manufacturing plants of India’s largest scooter maker, Honda Motorcycle and Scooter India, are shut and all its office-based associates have been asked to work from home, except for those whose physical presence is necessary to run the day-to-day essential services.

Hero MotoCorp has gone a step ahead and has halted production at all its global manufacturing facilities, including India, Colombia and Bangladesh, along with the global parts centre at Neemrana in Rajasthan, till March 31.

Employees at all the other functions and locations, including the Centre of Innovation and Technology in Jaipur will continue to work from home, Hero added.

The COVID-19 outbreak and the lockdowns that have followed come at, perhaps, the worst possible time for automobile companies. Sales across the industry had already slipped over the last 12-15 months.

Between April 2019 to February 2020, passenger vehicle sales declined 15 per cent to 26.32 lakh units, according to the Society of Indian Automobile Manufacturers. Commercial vehicle sales plunged 22 per cent to 7.05 lakh units, two-wheeler sales tumbled 16 per cent to 1.65 crore units and three-wheeler sales fell 4 per cent to 6.09 lakh units.

Companies had already reduced or stopped production of BS-IV vehicles with the April 1 deadline to shift completely to BS-VI with emission norms approaching. However, many companies still had BS-IV inventories in the market, which they were looking to sell by March 31. Now, there is a question mark on how they will manage to sell the rest of their BS-IV inventories due to the COVID-19 related disruptions. Auto companies as well as the Federation of Automobile Dealers Associations had already approached the Supreme Court, seeking more time for sale and registration of BS-IV stock.

“Domestic automobile demand is expected to be impacted for an extended period as consumers cut discretionary spending. The sector was already seeing slack demand and higher prices because of compliance with Bharat Stage-VI (BS-VI) emission norms,” according to ratings agency CRISIL.

Wuhan, the epicenter of COVID-19 in China, was a huge export hub for automobile components. Amid the outbreak, companies there were put in extended lockdowns, hurting supply chains of auto companies.

“Indian auto ancillaries and original equipment manufacturers (OEMs) have about 27 per cent import dependence on China for key parts and accessories. The extended production halts in China after the Chinese New Year due to a substantial rise in COVID-19 affected population have created supply-side risks for domestic auto companies,” said India Ratings on March 18.

India’s automobile companies had increasingly begun exporting from India to global markets over the last few years. These are also likely to get impacted badly with COVID-19 led lockdowns across Europe and North America.

“As the COVID-19 outbreak has now spanned all continents excluding Antarctica, the global consumption is likely to be affected at least in the near term, posing challenges to export-oriented auto ancillary companies as well,” said India Ratings.

Not surprisingly, the troubles across the automobile industry has had a huge impact on stocks, which are now trading significantly lower than their last 52-week highs.

Maruti Suzuki shares were down 12.4 per cent on Monday to Rs 4,449.60. The stock is down 43 per cent from its 52-week high of Rs 7,755. Utility vehicle maker Mahindra & Mahindra is down 59 per cent since its 52-week high of Rs 695.50 to Rs 283 on Monday. Tata Motors has plunged 71 per cent.

It is a similar case with two wheeler-stocks. Hero MotoCorp has tumbled 48 per cent; on Monday it was down 14 per cent. Bajaj Auto and TVS Motor have fallen 39 per cent and 35 per cent respectively.

📣 The Week is now on Telegram. Click here to join our channel (@TheWeekmagazine) and stay updated with the latest headlines