Post-Covid Era: Lockdown and other challenges Automotive Industry has to overcome

The Covid-19 pandemic has been difficult for the world in every manner, here we will discuss its major impacts on the automobile industry and Indian economy.

Covid-19, and the aftermath of it and its variants, had a disastrous effect on the people in general, and well, the economy of every country was hampered as well. It left the world little to imagine and we are still reeling with this COVID-19 pandemic which has by the way no mood to leave us all alone.

In between all of these scenes of devastation and frustration that followed the pandemic, there was, and I guess there still is mayhem going on in the global industrial arena. Sectors like F&B, aviation, electronics, and automotive have faced a downfall since the COVID came into existence. And it would not be wrong to say that the automotive industry has faced the worst ever downfall and disruptions like electric mobility, ride-sharing, and the likes of it, due to this pandemic and experts began to wonder whether the automotive industry would ever be able to witness the light of the day.

The automotive sector saw one of its worst phases during the peak of the pandemic in 2020. The industry was already facing issues like environmental issues due to emissions and changing consumer requirements and in came the COVID due to which there was a huge slump in car sales. As per rating agency Ind-Ra, automobile sales in India were expected to decline by 25% in 2020-2021. The onslaught of this pandemic has exaggerated the existing challenges of the automotive industry, causing deep uncertainty among the market players.

Although, experts have been wrong as there has been a slight improvement as far as sales numbers are concerned but this industry has a long way to go to reach to pre-pandemic levels. We are going to take you through the journey of the pre and post COVID market scenarios and give you a gist of the many challenges the automotive industry have faced along the way.

Some key challenges faced by Automotive Industry:

1. Manufacturing Shutdowns:

Large-scale manufacturing shutdown was what we saw happening around during the peak pandemic times. The reason is various governmental norms about the total lockdown and intense social distancing. And this was not just the story of India but governments across the globe implemented lockdowns and avoided people gathering in huge numbers so as to control the spread of the pandemic. All of this made manufacturing a challenge for automotive companies wherein people work in large numbers.

The Virus outbreak and the governmental norms about social distancing and intense lockdowns presented a huge question pertaining to whether normal manufacturing and work-life would ever resume. China, though in 2021, witnessed a return to production, although not with the same aggression. If we talk about countries considered as global powers, well, vehicle sales in the USA and countries of Europe fell by 84% as opposed to April 2019.

The already existing automotive industry challenges of excess production and resource shortage were italicized by manufacturing shutdowns which in turn led to severe financial losses directly impacting the GDP. Even the start of production in 2021 did not help much as the sales graph remained linear. In the end, the automotive manufacturing companies have to alter their approach for more efficiency and growth in terms of sales.

Also, this Covid thingy is not going anywhere. We have already seen 3 different waves and the first two were very severe. Although speculating that the coming waves would not be rough would be a big mistake. Therefore, continuous manufacturing shutdowns are going to remain a major problem for car manufacturers. This will lead to governments giving ease to emission laws to incentivize battery electric vehicle adoption. The manufacturers have to quickly and rapidly speed up the technology shift in the automotive sector to move away from the conventional manufacturing standards and processes.

2. Fewer Vehicle Sales:

Well, it's not something that we are unaware of. The automotive sales had a huge slump in March 2020 while we were facing the peak of COVID-19. In February 2020 the sales were as high as 350,000 units, in March 2020 it came down to around 180,000 units, and in April 2020 it came crashing down to just 4,215 units which, FYI, is an all-time low. All of this happened due to statewide lockdowns, social distancing regulations, and the shutdown of manufacturing units. At that time, the availability of vaccines seemed dim enough; and with added restrictions, car sales witnessed an all-time low.

Well, this should have not come as a surprise. Experts and Pundits would have already calculated an estimated loss due to the COVID-19 because it is common sense that in an event of a pandemic, purchasing a vehicle would be the last priority for consumers. All of this leads to excess inventory, a high level of debts, and demand uncertainty.

3. Massive Lay-offs:

Whenever there are manufacturing shutdowns, Employee lay-offs always come with it. And that happened this time too. I am a man of numbers and I would not bore you with long paragraphs when the numbers speak for themselves. Indian automotive industry suffered a Rs 2,300 crore loss per day and an estimated job loss in the sector was about 3.45 lakh, according to a parliamentary panel report.

Although the industry now is improving and recovering, dealing with the workforce is likely to remain one of the recurring challenges of this industry, as it will take quite a while before everything gets back to normal.

4. Disrupted Supply Chain:

The major problem faced by automotive companies was the disruption in supply chains across the globe due to manufacturing halts. Two-thirds of China’s manufacturing units were put on hold at the onset of the pandemic, which in the end severely impacted the supply chain. The auto supply chain is not limited to one single country, it is spread across geographies. But with different countries having their own protocol post-pandemic, supply chain management took a massive hit.

Automotive supply chains have been facing disruptions and disorganization, and they will now be under more pressure, due to the shortage of semiconductor manufacturing and the reinstatement of electric mobility. Companies like General Motors in January 2021 declared that it is going to concentrate and aim to have a complete portfolio of the zero-emission vehicle to sell, by 2035.

5. Change in consumer behavior:

The dire state of public health, a slump in the economy, rise in prices, and an all-out collapse of financials brought about a behavioral change in the buying pattern of consumers. Scarcity of finances and uncertainty about the future led to consumers backing out of making any vehicle purchases, which by far was the major challenge faced by the automotive industry.

Although everything is not in a dark zone for this industry as the automotive industry is the fastest improving industry post-pandemic. This industry is on the rise again, although the customer footfall is still low and is likely to remain the same for a few years. But there should now be a change in business model as well which should be based on consumer behavior, ushering a new era of electric connectivity, connected cars, and automation. If that be done and brought to the mainstream it is likely to open up new income sources for automation in the years ahead.