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Auto component industry seeks long term roadmap for regulatory changes

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NEW DELHI: The auto component industry is seeking a “breather” in terms of introduction of new regulations and a long-term roadmap for rolling out new norms for the sector in order to prepare accordingly for the transition which entails heavy investments, industry body ACMA has said.

The industry, which accounts for around 2.3 per cent of the country’s GDP, has been struggling of late due to a prolonged downturn in the auto industry as a whole and due to COVID-19 situation which has brought in supply chain issues and impacted productivity.

In an interview with PTI, Automotive Component Manufacturers Association of India (ACMA) President Deepak Jain said that challenging business environment has limited the capacity of the industry to invest further for any new regulations.

“During the shift from BS-IV to BS-VI the auto industry invested close to Rs 80,000 crore, 40-50 per cent of which was by the auto component industry.

Going forward such regulations will keep on coming so we have asked for a breather as an industry to recalibrate what are the most requisite regulations,” Jain said.

The industry, which provides employment to around 50 lakh people, said it also seeks a long-term (10-15 years) roadmap for the rollout of regulations so that it can prepare accordingly for the transition, he added.

“Investment ability of auto component industry has reduced significantly because of the downturn in the market and then, of course, COVID situation,” Jain said.

He added that with the current volatile situation, bringing stability to the sector remained one of the most critical aspects.

“I think fundamentally we need stability, there has been too much of disruption. We need to bring the industry to stabilise and post that we need to look at initiatives that are sustainable to make us stronger and stable for the future and this can only happen through very strong collaboration across all the stakeholders of the ecosystem,” Jain said.

Jain noted that initiating steps to boost demand as well as ensuring supply chain across the country were critical steps to ensure long term sustainability of the automobile industry.

“Even today supply chains are struggling. We are not able to cater to even muted demand. The Government needs to clearly look at it holistically and balance both demand and supply looking at the importance of the auto sector in the country,” he added.

If the Indian economy has to grow back, the auto sector will play an extremely vital role, Jain noted.

He added that various industry verticals like SIAM, ACMA, FADA among others and government would have to come together and collaborate in order to achieve future targets like becoming self-reliant in terms of various auto components.

Jain said as the industry has long-standing expectations from the government to bring demand boosters, ranging from tax realisation to priority lending status, even the government has expectations from the industry in terms of enhancing exports and ensuring localisation.

“There is a need to meet expectations of both sides and move together to ensure that bigger agenda of taking India forward is achieved,” he noted.

Jain, who has been elected for a two-year term, completed his first year as ACMA President earlier this month. Successful transition to BS-VI regime and facing COVID-19 induced lockdown were some of the major challenges which the industry faced last year, he noted.

The government took various steps to ease business environment, Jain said.

“However, where the expectation was short was basically to give direct incentives to boost the demand,” he added. Last fiscal, the auto component industry reported a turnover of Rs 3.49 lakh crore (USD 49.2 billion), registering a de-growth of 11.7 per cent over 2018-19.

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Covid-related inventory crunch has been ‘best thing’

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The auto industry has experienced the coronavirus pandemic in two distinct chapters. Early on, it devastated sales and shuttered factories. Then, it spurred a surge in demand for new and used vehicles alike. For companies like Group 1 Automotive, the end result has been a pretty good one, according to CEO Earl Hesterberg.

“The auto distribution network had been stuffed with too many vehicles for almost a decade. What you’re seeing now is the system has been cleaned out and it’s now a demand-pulled system,” Hesterberg said on CNBC’s “Power Lunch.” “I think having a tempered buildup in supply is the best thing that could happen to the entire industry,” he added.

Shares of Group 1 Automotive closed down 1.4% on Thursday after the Houston-based auto dealer reported third-quarter earnings that topped Wall Street expectations on the top and bottom lines. Sales of $3.04 billion eclipsed the $3.01 billion analysts were looking for, according to FactSet. Adjusted earnings per share of $6.97 beat estimates by 82 cents and represented an all-time record for the company.

Another dealership chain, AutoNation, also reported record earnings-per share earlier this month. In both instances, the catalyst for the higher profits proved to be faster-than-expected return of vehicle demand combined with lower inventories as manufacturers worked to ramp up production from coronavirus-induced plant closures. It translates to higher sales prices.

“Our inventories are actually lower at the end of the third quarter than they were at the second quarter when it comes to new vehicles,” AutoNation Chairman and CEO Mike Jackson told CNBC last week. “Industry inventories are still 25% to 30% below where they should be, if not even more, so it was challenging to adjust pricing to reflect the shortages.”

In Hesterberg’s view, though, the inventory crunch has not translated to a significant loss of sale volume. “Quite frankly, although we may miss a few sales, we probably missed less than people think,” said Hesterberg, who has led the company as president and chief executive since 2005. He was previously an executive at Ford Motor, which had a blowout earnings report after the bell Wednesday.

“We obviously have been surprised at the demand level through the pandemic but it seems to have some legs. What has really happened in our industry is the supply and demand balance has really been improved through this,” Hesterberg said. “And that had benefits for our sector. But also I think you can see it in the auto manufacturer earnings that have been coming out in the last week or so.”

Shares of Group 1 Automotive are up 7.48% so far in 2020. Since its pandemic-era closing low on March 18, the stock has soared about 230%.


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No immediate need for GST rate cut as industry doing well right now: Maruti Suzuki

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NEW DELHI: Maruti Suzuki India, the country’s largest car maker, on Thursday said there is no immediate need for GST rate cut on passenger vehicles with demand looking good for the next few months.

The auto major, with around 50 per cent of market share in the domestic passenger vehicle segment, said the government can look at the GST relief if demand tapered off in the future.

“The industry has done pretty well in the second quarter and I don’t think that anybody’s sales have suffered due to the lack of demand. What I am able to work out at the moment is that the production capacity more than anything is still being built up due to various constraints,” MSI Chairman R C Bhargava told reporters.

He further said, “Therefore, if I was in the government at this time when there is no lack of demand, giving relief at this stage would be quite unnecessary.”

In case demand falls and if it looks like that it is not a temporary thing but sustained dip in demand that is when the government will need to step in, Bhargava noted.

When asked categorically, if he sees no immediate need for GST relief because demand right now is sufficient, he said, “Yes”.

“I am selling everything I am producing. If the GST went down and demand increased by another 30 per cent I won’t have cars to sell,” Bhargava noted.

On how long the industry could wait for the GST rate cut, he said, “I don’t know how demand will develop in the coming months, what happens to the customer demand and the market.”

Various automakers in the past have demanded GST cut on automobiles in order to help the industry revive from a prolonged slowdown. Earlier this week, Tata Motors President (Passenger Vehicles Business Unit) Shailesh Chandra had said that any kind of government support in terms of GST cut would benefit the whole passenger vehicle segment.

Responding to a separate query, Bhargava said he never gets worried about any actions or inactions of the government because he cannot control what the government does.

He responded when asked if he was worried that the government and GST Council were not considering GST cut on cars.

“My philosophy is that if something is beyond my control then there is no point getting worried or happy or ecstatic about those things,” the veteran industry leader said.

Elaborating further on the matter, he added that in the second quarter, the company did well in terms of sales.

“Further, in the third quarter (October-December), the market situation looks quite adequate and we will not have a situation where we will have surplus stock available with us and we will be able to sell whatever we can produce.

“So, at this point in the third quarter, the GST impact does not arise,” Bhargava said.

The question will arise if sales start falling sometime next year, he added.

“If it does, in case a situation emerges like that then it is there I guess where the government will have to take a view, as in what they can do or would like to do,” Bhargava said.

When asked about the government calling for companies to scale down royalties to their parent companies, MSI MD and CEO Kenichi Ayukawa said that in order to develop new products, the auto major needs support from the parent firm.

Without divulging much, he said the company would try to communicate with the government and explain the matter to them.

MSI Chief Financial Officer Ajay Seth said the company has been pursuing cost-saving measures and in the July-September quarter, the automaker has been able to save Rs 270 crore more than the second quarter of 2019-20.

The automaker said the share of hatchbacks improved in the overall sales of the company in the second quarter. The company added that it also did not see any adverse impact on its sales number due to lack of diesel cars in its portfolio.


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Mahindra Electric eyes investment, bulk deals with e-commerce companies

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Mumbai: Mahindra Electric is eyeing the leadership position in electric last-mile delivery vehicle space and has been in discussions with several e-commerce companies including Flipkart, Amazon, and Reliance Retail among others for a potential deal. The company has also been in discussions with e-commerce companies for capital investment and is close to finalising a deal, said Pawan Goenka, managing director of parent company Mahindra and Mahindra.

“We have significant interest from many players – e-commerce providers, financial investors and strategic investors and we are in the process of finalising (a deal) with one or two of these players,” said Goenka. He declined to comment by when could a deal be concluded. The company launched its electric cargo vehicle under the brand Treo Zor on Thursday. The vehicle was designed in consultation with e-commerce companies, said Mahesh Babu, managing director, Mahindra Electric. “While we have made this also to meet retail demand, it is very specifically designed to meet e-commerce demand. We are in touch with many of them and you will hear when we jointly announce,” he said. Inquiries have also come in for these vehicles from Europe and Japan, but India remains the focus market, Babu said.

Mahindra Electric also makes electric three-wheelers for passenger transport under the Treo brand and has sold over 5,000 units since its launch in 2018. It has spent about Rs 100 crore in developing the Mesma 48 platform on which these vehicles are built, according to Babu. The company has localised most of the components on the vehicle barring battery cells and a few other small electronics which are imported.

The vehicles receive government subsidies under the Faster Adoption and Manufacturing of Electric Vehicles (FAME) scheme. Goenka said that government subsidies continue to remain critical to keep these electric vehicles competitive with combustion engines vehicles. While EVs are cheaper to own over their lifetime due to low fuel and maintenance costs, the purchase price still remains much more expensive than conventional vehicles. For example, the Treo Zor starts at Rs 2.73 lakh after government subsidies and lower GST rate as compared to about Rs 2 lakh for three-wheelers with diesel engines.


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