Automotive Tailspin And Actions In Recovery
Product, manufacturing, infrastructure, fuel, buyer behaviour, product alternates all are being disrupted leading to consumer demand going down. Major trend setting disruptions seem to be:
Photo Credit : Reuters
A conventional fighter pilot drill perhaps gives the best hint about actions to take during a tailspin and the auto sector could well take a tip or two from there. Commonly referred to by its acronym “PARED” this is how it unfolds: Power reduction — Ease up don't try too hard, Ailerons neutral — maintain balance, Rudder opposite — Solution may lie in another direction, Elevator forward — Don’t search for solutions from the past look ahead and finally Dive recovery — all the while keeping the mind calm and action steady.
The automobile sector is in a tailspin and has been for some time now. Secondary sales are down, dealer inventories are up and consumer sentiment is flat. The trend in the passenger vehicle segment is more ominous than the rest with a declining sale for a continuous tenth month. Less than 1.5 Lakh units are rolling every month and the two wheeler and commercial vehicles are not too far behind in manifesting this negative sentiment. Temporary production shutdowns have been announced by most auto majors. Add to that the fact that blue-chip auto and ancillary stocks taking a tumble on the bourses and the scenario couldn’t be bleaker.
Collateral and socio-political impact
As a significant contributor to the manufacturing GDP the automotive sector directly and indirectly impacts other sectors. Just the USD 50 B auto component sector will face a direct impact of this slowdown and several others like automotive retail, logistics, petroleum will face imminent indirect incidence. But the most significant impact and that’s why perhaps the most talked about will be on jobs. Auto majors, component and auto retail industry alone employ close to ten million jobs. Add to that jobs created by related industries and the numbers could be large. There is news doing the rounds of more than five lakh job losses and it’s only a matter of time this rumble turns into a roar. The social cost arising out of this will be the real impact of this down trend. Political parties in opposition dried up of issues to counter the government can be seen sharpening their knives and salivating at the thought of transitioning this social cost into a socio-political cost.
Short-Term for Long-Term: missing the wood for the trees.
As the mayhem continues major automakers are running helter-skelter trying to pinpoint the cause and search for a solution which seem unimaginative in the least. Most seem to be searching for a short-term solution and let’s face it for in an industry of this size none exists. This is a long-term industry by character. If the capital cost for manufacturer is high, relatively speaking the same is true for the dealer and the consumer. It is not an industry where “bundling candy with soap” solutions will work but sadly that’s where most manufacturers are seeking a solution. Requesting government to ease liquidity for consumers and dealers, reducing up front insurance cost, reduction of GST and postponing BS6 norms don’t really address why consumer sentiment is negative. Automakers seem to be depending more on policy makers and financial sector to bail them out rather than look for a solution within themselves. Or perhaps they are working on long-term strategies which they don’t want to reveal yet.
It’s the disruption stupid! Finger in the dike solution won’t work.
The real reason for the downtrend is perhaps the fact that for the first-time in a hundred years the automakers are facing a major disruption. And this one is a multi-impact disruption across the eco-system. Product, manufacturing, infrastructure, fuel, buyer behaviour, product alternates all are being disrupted leading to consumer demand going down. Major trend setting disruptions seem to be:
IC to EV: It’s a platform change happening from internal combustion to electric and during this transition the consumer is prudent not to get swayed by sops and keep his money safe till the Automakers figure out what’s the right product.
Asset heavy to Asset light: A general trend. Technology is driving people to use app driven ride share services which they are embracing with gusto.
Private to Public: Unlike some countries in the west where Motown suppressed development of public transport infrastructure by design India was shackled by policy lethargy which is over now and will result in public modes cannibalizing private transport.
So what’s the best foot forward?
Automakers: Transition from being an automobile company to becoming a mobility company in real terms. Not just using the term in advertisements. Move from device to device and platform or face extinction. There is no need to be scared as there are many strategies. Google is not eating everyone up. Even in the interim there are difficult but realistic survival strategies by altering revenue streams. Automakers have had it good for years and its now time to put those spikes on and make a dash out of the auto paradigm.
Government: Invest in public transport, invest in platform infrastructure, extend sops to those aligning with emerging technologies, encourage new hi-tech mobility manufacturing entrepreneurs, extend life of existing vehicle park by two or three years. This is the period that will churn and create nimble footed future entrepreneurs. Nurturing them should be a priority over supporting old relics
Auto Dealerships & Auto Components sectors: Break the umbilical cord to the automakers and think beyond. Auto dealerships will not be needed in the current format. Best to diversify using current strengths. Order books of component majors will dry up sooner than later but there is every likelihood that leaders of tomorrow could emerge from here.
Employees in Auto sector: Start thinking in terms of functional knowledge and not vertical knowledge There are new jobs being created everywhere and even more self-employment and entrepreneurship opportunities.
Car owners and future owners: Stick to old cars. Get them repaired, painted or whatever it takes to make them last for at least two or three years. That’s about the time the new ecosystem will figure itself out and then these could be junked for new. Non-Owners are best advised defer purchase, use ride share or buy second hand in case there is a tearing need.
It’s not the end of the world!
Disruption is a reality all around and this time it’s happening in the auto sector. It is just that because of its size the macro impact is felt far and wide. Else we’ve seen it happen all around us; music, camera, travel, hotels, the list is endless.
Secondly, disruption in the auto industry is global. There are many brilliant minds hard at work to find to find a way forward and the solution will come sooner than soon and all will be well.
Three things are certain though:
1: The industry will look completely different than anything that we have seen till now
2: The next big company in this sector is not going to be from amongst any of the current automakers
3:” Beam Me Up Scotty“ will become a reality!
Get ready for liftoff!
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