New Delhi: As the virus has upended the production activity across the country, the lockdown in NCR and Maharashtra, if extended, would deepen the auto makers’ woes in the country, CRISIL, a rating agency warned in its report.
Amid the fog around the severity of the pandemic, if COVID-19 cases keep rising and the duration of lockdown increases, it will lead to disruption in component supply chain to vehicle makers. Delhi-NCR; (including Gurgaon, Manesar, Faridabad and Greater Noida) and Maharashtra are important clusters of the supply chain. 80-85% of components for all vehicle segments domestically are sourced from these regions. The rest is sourced through imports.
“Any extension of lockdown would dramatically increase the sourcing risk for products such as cast engine parts and transmission drives because major capacities are located in the Pune and Delhi-NCR belts,” Ajay Srinivasan, Director, CRISIL Research said in a press release.
Some segments, such as passenger vehicles and two-wheelers are far more vulnerable than commercial vehicles due to their high dependency on components from these regions. It is because their original equipment manufacturers (OEMs) are located here and they source equipment from within to cut costs. The lockdown in these regions will hurt the supply to these OEMs. Commercial vehicles are a little insulated as their clusters spread across the country and thus, it might dodge the destruction from the lockdown. Tractors will also suffer a blow due to the dependence on these clusters and Tamil Nadu. “Passenger vehicles and two-wheelers will be particularly impacted since these two clusters are their major source of components,” Srinivasan said.
Delhi-NCR is home to major players in the automobile industry such as Maruti Suzuki, Honda, Yamaha and so on. So it has a marked proportion of their component sourcing. Meanwhile, Maharashtra takes care of Bajaj and passenger car makers like Tata and Mahindra. Both these regions make up over 60% of their components from within their clusters. As a result, major automobile players are located around these clusters.
The research by CRISIL shows that Two-wheelers and passenger vehicles (PV) are heavily dependent on Delhi-NCR and Maharashtra for components such as cylinder heads, cylinder blocks, crankcase, piston rings, engine valves. Whereas, PVs depend on Maharashtra for Electrical and electronic parts. Engine components for two-wheelers and passenger vehicles are at most sourcing risk as per the study.
The grounding of logistics will hurt the supply too as the same study suggests that 95% of the parts are transported by roads. The lack of labour after the workers left for their native village impedes restarting the logistics. The vehicle carrying trucks require skilled drivers.
The Indian automobile industry which was on its knees before the pandemic is now staring at an unprecedented loss after the major supply chains have crippled. According to Society of Indian Automobile Manufacturer (SIAM), the auto industry is losing 2300 crore for production turnover every day for halting operations.
“Even if the permission is granted, people are reluctant to start operations,” said an automobile analyst who does not want to be named due to company policy.
India’s largest car maker, Maruti Suzuki, despite being granted permission by the authorities has not yet resumed operations at its Manesar plant, the supervisor at the plant said in a telephonic interview.