COVID-19 slows auto industry by 4 years; full recovery by 2024

Key Highlights

• Auto industry suffers 34% decline in turnover at $15.9 billion in H1 2020-21
• It comes on a low base of 10.1% decline in turnover in H1 2019-20
• It turns forex positive for the first time ever
• Exports at $5.2 billion higher than imports at $5 billion
• Industry expects a strong revival in H2 but FY21 turnover to decline in double digits

The domestic automotive component industry that forms the backbone of India's $100 billion automobile industry, suffered a steep 35 per cent decline in turnover in the first half of 2020-21 as the pandemic piled on more misery on an industry that was anyway reeling under an unprecedented slowdown.

The industry recorded a turnover of $15.9 billion during the period against $26.2 billion in 2019-20, which itself was lower than $29 billion in the same period of 2018-19.

Industry body Automotive Component Manufacturers Association of India (ACMA) said while it was hopeful of a strong rebound in the second half of the fiscal on the back of robust sales in the just concluded festive season, it will still end up with a high double-digit growth for the second consecutive year in 2020-21.

"The industry has registered a steep decline as for almost the entire first quarter we could not produce anything at all due to the lockdown. From July onwards, the recovery has been very strong leading to the festive season which gives us a lot of hope. But even then, we would not be able to make up for the 34 per cent fall of the first half," says Deepak Jain, president, ACMA. "By the end of 2020-21, industry's turnover would probably have come down by 25 per cent in the last two years. It may take up to four years for us to recover to the peak levels of 2018-19 though I pray and hope it is sooner."

Almost every segment of the industry has suffered during the year though some have fared worse. The share of OEMs purchase, which accounts for a giant share of the industry's business, declined by 42 per cent at $11.6 billion. Exports registered a 23.6 per cent drop at $5.2 billion while imports dropped even more sharply by 32.7 per cent at $5 billion. Like in the case of India's overall economy, which had become trade surplus in the middle of the year, the automotive component industry has also become foreign exchange positive for the first time ever. It is likely to be just a one-off though.

The aftermarket segment, not surprisingly, was the most resilient reaching pre-COVID levels as early as July. The overall decline in that category was hence only 15 per cent at $4.1 billion.  

"The auto industry witnessed a downturn in FY2019-20, the situation further aggravated with the outbreak of the pandemic and the lockdown. While the first quarter for FY20-21 was significantly stressed, with unlocking of the economy, the sales of vehicles witnessed improvement, month-on-month, in the second quarter. The component industry, in tandem, posted a subdued performance with de-growth of 34 per cent over the first half of the last fiscal, registering a turnover of Rs.1.19 lakh crore ($15.9 billion)," said Vinnie Mehta, Director General, ACMA. "However, for the first time ever, the industry witnessed a trade surplus with Auto Component exports at Rs.39,003 crore ($5.2 billion) and imports at Rs 37,710 crore ($5 billion); both exports and imports declined by 23.6 per cent and 32.7 per cent, respectively. The Aftermarket, estimated at Rs 31,116 crore, also witnessed de-growth of 15 per cent. Component sales to OEMs in the domestic market contracted the most to Rs 87120 crore ($11.6 billion), declining 42 per cent."

While the jury is still out on how good the festive season actually has been - passenger vehicles saw good sales but two wheelers were a mixed bag, and whether the revival would continue, ACMA was hopeful that it would sustain.  

"Whilst the performance of the industry during the festive season has been heartening, there are indications that the vehicle demand, in the coming months, will be sustained. According to the recent ACMA-PwC joint survey of ACMA leadership, despite concerns of another wave of pandemic, the industry is cautiously optimistic about the prospects of the Indian economy and the automotive sector for FY2021-22," said Jain. "Companies have mostly recovered and are back to moderate financial health, post the lockdown. Financially healthy and growth focused companies are also actively focusing on CAPEX and acquisition / merger opportunities.   While increased visibility and commitment to new program timelines from OEMs is a key industry expectation, at an organizational level, focus on employee productivity and organization structure consolidation will be the key thrust areas."

Key findings of the ACMA Industry Performance Review for H1 2019-20:

• Exports: Exports of auto components declined by 23.6 per cent to Rs.39,003 crore ($5.2 billion) in H1 2020-21 from Rs 51,028 crore ($7.4 billion) in H1 2019-20. Europe accounting for 31 per cent of exports, saw a decline of 28 percent, while North America and Asia, accounting for 30 per cent and 29 per cent respectively also registered decline of 28 and 30 per cent respectively.
• The key export items included drive transmission & steering, engine components, Body/Chasis, Suspension & Braking, among others.
• Imports: Imports of auto components decreased by 32.7 per cent to Rs.37,710 crore (USD 5.0 billion) in H1 2020-21 from Rs.56,066 crore (USD 8.2 billion) in H1 2019-20. Asia accounted for 60 per cent of imports followed by Europe and North America, with 30 per cent and 9 per cent respectively. Imports from all geographies witnessed steep decline.
• Aftermarket: The aftermarket in H1 2020-21 witnessed de-growth of 15 per cent to Rs 31,116 crore ($4.1 billion) from Rs.36,607 crore ($5.3 billion) in H1 2019-20.

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