Automakers Can’t Resume Production Overnight, Hero Enterprise’s Sunil Munjal Says
Indian automakers aren’t likely to begin manufacturing vehicles anytime soon even as the government allowed them to start operations from April 20 even as the lockdown to contain Covid-19 continues, according to Sunil Munjal.
“To expect the manufacturing facilities to come back and spring overnight is a near impossibility,” Munjal, chairman of the Hero Enterprise Ltd., told BloombergQuint in a interview. “The distribution dealerships need to open, car servicing workshops need to open, people need to venture out to check and buy vehicles and when they do, manufacturers need to liquidate their pent-up inventories before they can start making more.”
Even after these stages, manufacturing might not be easy, he said. “Please remember, an automotive product is made of many, many players in the entire value and supply chain. It only works if the entire supply chain works. If any part of the supply chain is in the red zone or partially in the red zone, it will get impacted and, therefore, will impact the ability of any major OEM [original equipment manufacturer] to produce in any cohesive manner.”
India extended the world’s strictest lockdown to contain the new coronavirus outbreak even as economic activity has come to a halt.
Nomura Holdings Inc. estimates as much as 60 percent of India’s economy can now be open, but not before shrinking output by 0.4 percent for the year started April 1 compared with growth of 4.6 percent the previous year. Most major automakers, such as Maruti Suzuki India Ltd., Hyundai Motor India Ltd., Toyota Kirloskar Motor Pvt Ltd. and Honda Cars India Ltd., haven’t resumed production yet.
Munjal said the government’s plan to reopen the economy is necessary to safeguard lives but also a very complex operation. Authorities will have to allow a few people to work in every part of the supply chain for it to work, he said.
While every industry, company and individual across the world has suffered because of the pandemic, which has infected over 2.4 million people so far, Munjal believes the impact on businesses in India can be divided into three classes: those operating at full capacity because their product or service is essential; industries affected during the lockdown and will resume quickly after, such as movie halls and restaurants; those who will take a longer time to recover with the economy in close to 18-24 months. He put the automotive and auto components in the third bracket.
The industry veteran, however, expects demand for personal vehicles to rise after the lockdown ends. Amid lack of purchasing power, “people will try to balance their ability to spend with their desire to use personal transportation”, he said.
WATCH | Sunil Munjal On Impact Of Coronavirus Lockdown On Auto Sector
Case For Government Support To Pay Salaries
The government fiscal response—a package of Rs 1.7 lakh crore—has been largely directed towards individuals who needed urgent relief. While that was the right thing to do, the government needs to loosen its fiscal purse strings and provide direct cash support not just to small and medium enterprises, but also large companies, Munjal said.
“The government on one side has said please don’t fire people,” Munjal said. “In March, most people paid salaries but now they’re saying if I don’t have any revenue, how will I support paying all my staff and workers while keeping the other costs of the companies running? Borrowing isn’t easily available either despite RBI's effort.”
“Support from the government is absolutely essential and it must go directly into the system as cash, either by wage or salary support,” he said.
Apart from “forgetting FRBM for the next two to three years”, he said referring to the statutory fiscal deficit caps, the country must print cash as inflation is not presently a worry. India should dip into the Reserve Bank of India’s foreign and domestic cash reserves, he said. A $30 billion from the foreign cash reserve can be turned into a fund that will act as a guarantee to foreign loans, while the domestic cash reserve can be used to infuse money into entities across the board, he said.