Sunday, August 18, 2019

Waiting for driving force as economy runs out of gas

Common man may be enthralled by PM Modi’s ‘hard’ state concept, but the govt has been anything but decisive on economic front. Last week’s FM-PM meeting could end this indifference18 Aug 2019 | 7:19 AM[ + read story ]

Auto clusters in region apply brakes, count their losses
Sales of passenger vehicles have declined by 30.98%, the steepest fall in two decades. For auto giants, component makers, road to recovery is getting difficult by the day

Vijay C Roy in Chandigarh

Lumax Industries, market leaders in automobile lighting solutions, recently reduced the number of contractual workers by about 500 at its manufacturing units spread across six states, including Haryana, because of the weak demand from automakers. With a drop-in revenue of 20 per cent, Lumax joins a growing list of component manufacturers who have either cut manpower or trimmed production amid a demand slump.


Jamna Auto Industries Ltd, makers of springs used in vehicle suspensions, recently said it might shut all its plants this month itself due to the weak demand. Bosch Ltd has begun restructuring parts of its business.

Be it Gurugram, Manesar, Ludhiana or Jalandhar, the slowdown in the auto sector has decelerated production in all these auto clusters, leading to job losses.

With over 10,000 units, including micro and small, the region comprising Punjab, Haryana and Himachal Pradesh is one of the major hubs for auto components. It meets nearly 30 per cent demand of the auto industry in the country, with Haryana having the maximum number of auto component units and share in the country.

Severe impact

Vineet Sahni, CEO and Senior Executive Director, Lumax, says the slowdown is quite severe and the drop-in revenue is not even covering the fixed costs. On whether his company was also forced to shut plants, he said, “Yes, we are following the customer. Wherever our customer has decided to shut, we do too.” The  company has 10 units.

Besides large and medium units, small businesses have been impacted the hardest by the sales slowdown. According to the industry, the share of SMEs in auto components is 25-30 per cent of the turnover. These SMEs are manufacturers of high-volume components such as suspension and brake parts, fasteners, washers’ body and chassis parts. As the demand for automobiles continues to remain under pressure for several months now, the North India-based auto component manufacturers are a worried lot.

The repercussions are visible across the value chain with ancillary units forced to cut production by 25-30 per cent to avoid inventory pile-up. In addition, many of these units have put their expansion and modernisation plans on hold. Some of the ancillary units are putting special thrust on sectors which are doing well.

Contractual workforce hit hardest

“The weak demand is hurting the industry. The industry has not only cut down production, but the practice of overtime is also being stopped as orders have dried up. In addition, no new recruitment is being done. Further, the drop in sales has jeopardised the expansion and modernisation plans of the MSMEs,” says US Ahuja, MD, New Swan Enterprises, Ludhiana.

According to Rajesh Jain, director of Rohtak-based Lakshmi Precision Screws Ltd, the component makers have cut down production by 20-25 per cent and on an average every unit is observing routine shutdown of two days a week. Many have sent the contractual workforce home.

According to experts, around 60-70 per cent of the workforce employed in auto component makers is contractual workers. As the industry is passing through tough times, the component makers have reduced the contract workforce by 25 per cent.

As per auto industry body SIAM (Society of Indian Automobile Manufacturers), almost 15,000 workers — mostly temporary and casual — have lost jobs in the automobile manufacturing companies over the last two to three months.

The units are also working on modalities to hedge reduced orders. “We are also experiencing a decline in demand from our customers but we are not impacted much as we have a diversified portfolio. In view of the slump, we have shifted our focus to other areas such as exports and supplying components to metros,” says Rajesh Jain. He feels that the component makers who were entirely dependent on the auto sector are bleeding.

As companies such as Lumax witness a slump in revenue, the are adopting measures to cut custs, including a reduction in fixed costs, to cope with the situation. “We expect the government to provide a powerful stimulus to revive the industry on an urgent basis,” says Vineet Sahni.

Truckers go without orders 

The slowdown in demand that dented auto industry’ sales and production has had a cascading effect on the local economy, causing hardships to small businesses that supply services like logistics and raw materials to the key manufacturing sector.

Not just those directly related to the supply of parts for manufacturing, but even the providers of tertiary services like transport and raw material have been hit.

“Truckers who used to bring in raw materials for the industry and are also involved in supplying the finished product (vehicles) to respective dealership have hardly any order in their hand,” says Kultar Singh, a driver working for a local transport company.

According to experts, not only individuals who lost jobs, but small and even large businesses could default on their interest obligations taken for either personal purposes or business.

Dealers’ body positive on long-term outlook

The slump notwithstanding, president of the Federation of Automobile Dealers Associations, Ashish Harsharaj Kale, says that with a vehicle penetration of less than 30 cars per 1,000, the growth story of Indian auto sales will continue for the next decade and beyond. 

“Asian countries like Malaysia, Indonesia, Thailand, the Philippines and Sri Lanka, which have economic growth similar to or lower than India, have a far higher vehicle penetration. Their auto sales have been growing,” he adds.

According to Kale, although the current situation is worrisome, it is a temporary phase, and the fundamentals of “our fast-progressing nation continue to remain strong. We are growing stronger by the day. With progress comes the aspiration to a better life. The automobile sector is best suited to deliver on it,” he says.

“The ever-growing road network has been connecting every corner of the country to the mainstream. The consumption is likely to increase further. The Indian automobile story will continue to flourish, and so would auto dealerships,” adds Kale.

Since Monday, I have met five different groups representing banks and financial institutions, SMEs, industries and automobiles and listened to their problems. We are analysing what steps should be taken.— Nirmala Sitharaman, Finance Minister

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