The auto industry in India had been under recessionary conditions between July 2018 and January 2020 due to regulatory changes, the call to shift to electric vehicles and changes in consumer preferences. Demand is likely to slow down further, with non-availability of labour, concerns on health and safety management on the shopfloor due to the Covid crisis adding to the sector's woes.
The automotive industry had a loss of production of 750,000 units in March 2020 alone, which is around one per cent of the total units produced in 2019, because of the lockdowns. Even after the lockdown is lifted, it will take 6-18 months for demand to pick up. Due to the disruption, sales are likely to plunge by another around 20 per cent as compared to 2019. Due to growing apprehensions during the lockdown, workmen are refraining from attending work. Some shopfloors have been left deserted. Further, due to large scale migration of labour across India, availability and redeployment of contract labour post lockdown is a major concern.
The cycle of money flow from customers to dealers to OEMs and ultimately to Tier 1 and 2 suppliers has been disrupted, leaving behind an outstanding of Rs 500 crore – Rs 1000 crore in this short period.
An estimated Rs 20,000 crore worth of unsold inventory is currently lying with the auto manufacturers and revenue loss/day of about around Rs 2,300 crore is estimated for the auto sector in India.
It has amplified the existing vulnerabilities in the automotive sector and this would force automotive players to review their current operations maturity and start a transformation journey.
"The current stress on liquidity and factory operations due to the disruption caused by COVID-19 will most certainly accelerate the digitization of shop floors and enable auto manufacturers to become proactive, agile, flexible and adaptive. Each auto manufacturer would need to immediately undertake a stage wise approach to achieve digital maturity at a faster pace," said the report.
As per EY Digital Manufacturing India Survey 2019, only 23 per cent of the large manufacturing firms in India have a clear digital strategy. However, unlike other industries, the automotive shop floor still leads in the adoption of emerging technologies in India.
All the automotive players should have the huge amount of data coming from shop-floor as a central asset. Insights from this data will help in improving operational performance. The key to achieve this is by doing all the right things to increase the pace of digitisation.
Digitisation is likely to help OEMs and auto component manufacturers extract data to help them study the past events and improve their productivity. The data can also be used for gathering insights that can be leveraged to make smarter decisions and predict future events. It would also help the shop-floors to remain functional in such crisis situations, where dependency on manpower has been a challenge. Digitisation may also address the strategic imperatives like, preparing for volatility and variables, reinventing manufacturing and supply chain, and evolving the workplace models to attract talent.
The industry also need to set-up a Crisis Response team and perform the complete assessment of the impact on critical plant functions. Mitigation strategies need to be activated for immediate response in the next two to three years. A Digital Response Center (DRC) may be set-up to collaborate with this team to facilitate the execution of the interventions required for immediate response through technology. The DRC will embark on a sustained digital journey to achieve stability, resilience and growth in the next one to two years, it added.
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