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Vol. XXX No. No. 11, October 1-15, 2020

Chennai’s Auto Industry recovers from Covid

by Our Special Correspondent

As Chennai emerges from a prolonged lockdown, regaining a healthy economy is a key agenda for administrators and industrialists alike. In this series, Madras Musings will attempt to examine the impact of the pandemic on the top industries in Chennai, their current challenges and their path to recovery. The first article in this series explores the automotive industry – after all, Chennai is known as the ‘Detroit of India’ for its automobile manufacturing capabilities.

When the lockdown clamped down on the city earlier this year, its immediate impact on the automotive industry was much the same as it was for other industries – production came to a halt and with it, cash reserves were crunched. Based on a survey conducted by the Madras Chamber of Commerce and Industry across 1,200 MSMEs, the biggest challenges post-lockdown were found to be the lack of liquid cash, reduced availability of labour and difficulty of logistics. “As operations resumed, companies had to contend with the fact that the first quarter had booked a loss – after all, there was no activity for a significant period of time,” said Srivats Ram, MD, Wheels India. “It was hard to pay salaries or make payments to suppliers. Labour continues to remain a challenge – a certain percentage of the force was made up by migrant workers and not all who have left have returned.” Businesses are also facing the added complexity of some local employees remaining under confinement because of quarantines, either because they are directly affected by the virus or live in complexes that house infected persons.

Based on recent reports, the automotive industry is seeing a glimmer of light at the end of the tunnel – a handful of Indian companies reported an increase in sales in August, cautiously attributed to pent-up demand. “Volumes are on track to recovery, for cars and two-wheelers,” said Srivats. “The segment that’s affected – because of a combination of covid and business cyclicity – is the commercial vehicle segment. Fortunately, a clutch of suppliers in this segment also supply the tractor segment which is seeing growth, so the effect is ameliorated to that extent.” He estimated that his own company is producing at 85 per cent of its normal capacity. “We have set up a lot of systems to ensure that employees are safe,” he said. “We take temperature readings, use pulse oxymeters, take precautions when people are near confinement areas… we do what we can to support our employees, even if someone tests positive for the virus.”

Speaking to new export possibilities that have cropped up because of moves to reduce dependency on reigning global heavyweights like China, Srivats explained that the opportunity is perhaps limited. “I understand that despite all the talk, China’s percentage participation in international trade has actually increased. However, the fact remains that companies in some geographies are looking to de-risk, if nothing else; so yes, there are opportunities in the future for Indian companies.” He also pointed out that Bangladesh and other South-East Asian countries remain competitors, and generating international business also requires Indian companies to be validated as suppliers, which will take time in this pandemic. But Chennai does have an edge in this regard – it has the advantages of an established industrial culture, a skilled talent pool and decent infrastructure. As a port city, inbound and outbound logistics are easy to implement, too.

Commenting on the long-term impact of the pandemic, Srivats felt that some practices, like work-from-home operations, may be here to stay. “No one would have thought of implementing such a system earlier; the amount of virtual work that can take place is eye-opening. Also, people are seeing the virtue in having a certain degree of flexibility – we’re learning to be adaptive to difficult situations and turning weaknesses into strengths.” Speaking of the larger picture, he also said that Chennai’s resilience is holding it in good stead. “This pandemic is like a storm, and the city and its industries are still weathering it. Chennai is rising to the challenge, with a number of people who are helping with each other. Looking back, the prospects seemed dismal in June and most companies have taken a massive hit in the first quarter; the challenge now is to see how far we can make up for the losses in the coming months.”

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