Aftermarket Spending for Automotive Industry to Decline in FY 2021

The nationwide lockdown since March 2020 has caused a ripple effect that’s going the change the face of many industries by the time the situation will be controlled. Amongst many, the automotive industry is no exception. The tip of the iceberg is quite visible now with limited purchasing power, restricted movement of the citizens and the downfall of the demand as opposed to the supply of the products.

Economists and experts forecasted for an upright GDP of 5.5%, the COVID-19 breakout is expected to take the number to negative 1-2% growth rate. The government understands the present situation and has begun the ‘unlock’ procedures, however, with the still spiked graph of the cases nationwide, the market is not likely to come back to normal for at least a year. It is expected that automotive spending will be limited to 11% this fiscal year.

All the major cities and districts, which accounted for 43% of the total revenue, are presently coping up with rapidly increasing cases. The authorities are forced to extend the lockdown period, which eventually is causing the automotive industry to shrink. As per the Crisil Research experts, the supporting industries, like tyre, lubricant, and engine oil are going to suffer.

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The industries have been battling survival for a while now. However, with this, experts from the Crisil Research say that the market is most likely to go down by 11% in FY21, which is a worrisome situation for the industry.

Fourth-Largest Passenger Vehicle Market :

It took India almost seven years to create a demand and increase its annual production from three million vehicles to four million vehicles. The next milestone, five million, is aimed within five years. By 2021, India is to be fourth-largest passenger vehicle market. It’s known that Indian economy highly relies on the automotive industry. The complicated deployment of all sorts of materials and essentials for industries or daily use is done by roadways. While most of the automotive manufactures either have a base in China or have their supplies from the country. The sudden eruption of coronavirus has disrupted the industry, which will take a while to be back on track.

Experts strongly believe that the complete impact of the pandemic is yet to be seen. The industry will see an effect on logistics, transportation and customer demand. The whiplash can be felt on the customer demand, which is most likely to go down, labour shortage as most migrant labours have gone back to their villages and town and will be hesitant to return back to the factories, and the shutting down of manufacturing plants due to shortage of funds, workers, or demand.

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Four-Wheeler vs Two-Wheeler :

Despite the complete lockdown, a few industries were functional that has kept the automotive industry rolling. In mid-May, the utilization of the commercial vehicles reached around 30% and is expected to return to the pre-pandemic level by sometime around September. However, this entirely depends on the nature of the customer, which will be the primary content to the aftermarket spends.

In two-wheeler, the aftermarket spend might go up as there will be tyre and engine oil replacements along with the usual servicing. However, the entire assumption depends on the annual running of the vehicle. It is also expected that the two-wheeler owners might opt for a cheaper or reasonable option post-pandemic. Once the life starts to return to normalcy, the running of two-wheeler will increase, and thus the supporting industry will start to come back on track.

The government has started to bring back the normal life by strategically allowing companies and industries to open up with utmost precaution. As people will start going back to their workplaces and things start to look better, the industry will see some demand. The impact on passenger vehicles can be seen more as the revenue is expected to fall down by 4%. This is due to the maintenance the vehicles would need post lockdown. With commuters shifting to personal vehicles, it may add up to the already affected revenue of the passenger vehicles.

Amongst all the states, Maharashtra is the worst affected state and will surely be visible in the aftermarket spending. This will be followed by Tamil Nadu, as reported by Crisil Research. Tamil Nadu has got seven districts and Maharashtra has got six amongst the 50 high-susceptible districts in India. These states also include key cities. In these 50-high susceptibility districts, they contribute 35% of automotive aftermarket spends. As per the research, cities that have a higher proportion of passenger vehicles will have a lesser impact when compared to the cities with higher dependency on commercial vehicles or two-wheelers.

World Market & Future Possibilities :

Before the pandemic, the world automotive manufacturers had 20% more capacity than needed. The closed factories are costing the manufactures in return of no profit. For survivals, manufacturers might consider shutting down of underused sections just to keep them afloat in such hard times.

The situation is going to be tougher for small car manufacturers than the giant automotive companies, like Fiat, Renault or Volkswagen. The stricter labour laws make it difficult for companies to shut down their manufacturing plants without meeting the legal requirements. The in-depth involvement of law and politics is surely going to cause further trouble to these small car manufacturers while they try to keep things under control in the pandemic situation.

Amidst all the negative impact of the pandemic in the automotive industry, one can surely look up to the innovation as the present-day result. As the countries struggle to keep the petrol and diesel prices a to the minimum with their adjusted policies, hybrid and electric car manufacturers might see this as an opportunity to increase their production and present some of the futuristic vehicles in the market.

In the world market, as the demand of cars fell by more than half, however, in Europe, the registration of the battery-powered cars increased by 23% as per the reports by Matthias Schmidt, a Berlin-based analyst. This sudden increase can’t be placed as a motivator for the car manufacturers but can be considered a piece of positive news for the automotive industry while it is trying to maintain a decent growth worldwide.

The speculations can be well made looking at the present scenario but the possibilities of the market post lockdown are endless. The automotive industry, worldwide, needs a robust solution to keep the industry going without causing many dips in the growth. As far as the Indian market is concerned, the entire prediction depends on the demand, purchasing power of the consumer and their willingness to spend on vehicles.