New Delhi: The OEMs along with suppliers and dealers might start becoming irrational upon getting back into the cycle post-lockdown as they will be under tremendous pressure to ramp up the volume and sell more vehicles, said Pawan Goenka, Managing Director, Mahindra & Mahindra (M&M) in an ETAuto Townhall- Thought Leader’s Vision in Crisis, conducted on Monday, requesting everyone to remain rational.
Voicing his concern he added, “It is going to cause more damage to the industry than doing any good if we start getting irrational behaviour to get more customers, whether it’s suppliers selling to OEMs, OEMs dispatching to dealers or dealers complaining to each other to get customers after the resumption.”
During the TownHall attended by thousands of industry stakeholders, Pawan Goenka asserted that re-establishing the entire value chain would be the biggest task ahead for the auto industry. “Nobody should undermine the enormity of that task. When we re-start, all the pieces have to come together. There are so many gears that are missing right now. The rhythm has to come back”, he underlined.
It would be a big achievement if we are back to running normally in 2-3 months by putting our supply chain in order~
As the workforce for many tier-two and tier-three suppliers depend on migrant workers, getting them back is going to be a struggle, feels Goenka. Loaders and unloaders for dealers are also mostly migrant workers.Another concern according to the managing director of M&M would be putting the broken inventory cycle in place again and get the cash cycle to start working.
He said, “It would be a big achievement if we are back to running normally in 2-3 months by putting our supply chain in order including the dealer dispatches post lockdown, that is not to say if customers will come back in 2-3 months. It might take even longer.”
Liquidity: Biggest Concern at this Hour
One of the biggest problems OEMs, dealers and suppliers are facing amidst lockdown is of liquidity.
As per Goenka, dealers are the worst hit because for them the cash flow is a day to day affair. They sell some vehicle, get some revenue and they buy new stock. Right now they are worst hit followed by OEMs.
Talking about OEMs, he emphasised, “OEMs are hit because they work on negative working capital and right now they have to pay all the creditors and not all the debtors are coming in, therefore they are also under tremendous pressure in terms of liquidity.”
He further added, “Suppliers are perhaps in a comparatively better situation where they are probably getting money from their OEMs for supply they have done in the past couple of months and not having to invest fresh working capital.”
Deferred Product Launches
Another thing that has been put on hold amidst the COVID-19 crisis is product launches and preparing for the car launches can only happen once the whole world resumes operations pointed Pawan Goenka.
He explained, The product development work for all companies perhaps is even more global in nature than a supply chain network. For Mahindra, something is going in Korea, something in China, something in Europe, something even in the USA, therefore the whole world has to start before everything comes back into gear because we’re so globally connected.”
Outlook for Long Term
Contemplating how the auto industry will evolve after battling such an unprecedented crisis, Goenka said it depends on many factors, if the demand for personal vehicles will accelerate or slowdown?
He opined, “I think shared mobility probably will stay, maybe there would be a slowdown in that segment. But what will certainly happen mileage of driving will be affected. They will not drive as much as they want to because working habits may change keeping in mind work from home and virtual meetings. That doesn’t mean demand for cars will go down but number of kilometers per car will go down.”
Goenka feels it might have an impact on employment with everything going digital and automation may go up significantly in factories which can lead to reduced employment at a time when the economy cannot afford it.
He also added that the trend of online will become expedited due to lockdown.
Creating fund for bank creditors is a major concern for OEMs which is putting tremendous pressure on their balance sheet~
Redefining the Value Chain
Underlining the need for redefining the entire automotive value chain, Goenka said, “If we stay with what we are learning, we can probably save Rs 100 crore a year, a CFO of auto sector told me. Now that’s a fairly major saving that we can have in our fixed cost without compromising with the business need and requirements.”
He added that reporting retail sales could help in managing a high inventory level.
Goenka called upon the need for different industry bodies like SIAM, FADA and ACMA to come together to redefine the way industry functions and look at sourcing locally within India.
Pawan Goenka feels that the government of India can look at disruptive intervention post-COVID to grow the industry and promote make in India.
He feels at this time the important thing is support for employment and wages, especially for dealers and MSMEs.
He said, ” OEMs are facing a crunch in cash flow. Creating fund for bank creditors is a major concern for OEMs which is putting tremendous pressure on their balance sheet. The government can support the demand to build up at least three months.”