By invitation: Bipul Chandra, MD, Ducati India says the on-going battle is tough, but the automobile industry will prevail in the aftermath of the Corona crisis.
Novel coronavirus or COVID-19 has become a household word now. It is one of those information items, which has transcended the international boundaries and bridged the gap between the haves and the have-nots. Everyone is equally confused, terrified, and uncertain about the future. Globally, about 3.5 million people have got infected and in India, the figure is over 50,000. These are huge numbers and when you include about 250,000 and more fatalities (globally) in conjunction, the reality sets in.
The world is in uncharted waters!
However, it is not the first time the world is going through such a pandemic. Right from the very beginning, 4.5 billion years ago, when the earth was the most violent place (till the recent past which includes the two world wars), life in general and the human race in particular, have found ways to sustain. Humans are one of the most resilient and adaptable species up for all challenges. COVID-19 is no exception. Worldwide efforts are on to find a vaccine, short-term actions like lockdown are underway, and the world is trying to contain the pandemic. India is well poised to tackle this situation. India is facing a multi-layered crisis that includes a health crisis, a domestic economic crisis, falling external demand, capital outflows, and above all, the humanitarian crisis. Given our population and inherent structural issues, the work becomes tough, but not impossible.
The automotive industry is one of the pillars of India’s GDP, with about an 8 per cent contribution. It is also one of the largest employers, with about 40 million people working directly or indirectly within it. India Inc. had started feeling the headwinds much before the COVID-19 and the auto industry perhaps more so. Everything from passenger vehicles to two wheelers, and CVs had begun showing signs of stress with a loss in volumes. Now the Indian automotive industry has a two-pronged job at hand: To tackle the already prevalent problems of demand, liquidity, etc., and to also deal with the compounded issues caused by COVID-19. At this juncture, we have no big data points to support our thought processes. So we need to look at options and understand the best fit. So I am listing out a few points I view as worthy of our consideration.
- In the past, we have come out of the various issues that have affected us – be it invasions, famines, the freedom struggle, partition in 1947, various civil unrests, etc. – as a stronger country.
- Even the crises of the recent past, have seen India weathering the storm, and come out shining. The 2008 crisis, demonetisation, the various terrorist attacks we have endured – are some examples.
- In the short-term, shared mobility will take a hit and this is going to positively impact the automobile industry, albeit at the lower value level.
- There is a valid fear of job losses. However the overall Indian industry has to come back on track and that requires manpower, which shall in turn require mobility.
- Coupled with the (hopefully) benevolent attitude of the Central Bank and other lenders, cheaper finance may be made available. This will provide an impetus to help move auto retails forward.
- The automotive industry accounts for about half of the entire manufacturing output in the country. So given financial support from the government such as time-bound GST relief, concessions on the customs duty of certain components, lowering of registration taxes, limited concessions in multi-year insurance costs, immediate roll-out of “end of life” policy for older vehicles, may give the desired boost to the automotive industry and this, in turn, may help the entire economic scenario in the country.
So, it becomes incumbent on the government to implement monetary and fiscal policies that support credit markets and sustain economic activity. One very important marker to look towards is China. There, more than 90 per cent of manufacturers have resumed production, utilising 85 per cent capacity. Almost all Chinese automobile dealerships have resumed operations, and auto retails are better than the earlier projections. Europe too is opening up as I write this. It is anticipated that in the Post COVID-19 era, automobiles are going to stage a strong comeback. However, this shall not be without its share of problems and we as an industry must be ready with the following:
- Team and workforce management at both the OEMs, and the dealers: Of prime importance will be their health and motivation.
- Providing a safe environment for our teams and customers to make the buying process a positive one.
- Review of working capital structure: Liquidity in the short term and building system capability for handling any future crisis.
- Lean infrastructure but adequate for customer support – at both the channel and OEM end.
- Review of how we do the business by investing more on digital tools, as also educating & encouraging customers towards these online channels.
- Inventory management and supplier chain review. Probably moving away from huge inventories and providing stocks as and when needed.
- The above point shall need top of the line situation understanding from dealerships and OEMs. This means dealerships will have to follow the lead generation process properly and forecast the demand in a very professional way (with very little scope of mistake).
- Brand and customer protection: New product launches with on-board electronics to track the health parameters of the customer could become a USP going forward.
- Managing any legal dispute coming from this pandemic, and getting ready for future situations like this.
- To be ready for further disruptions, and to leverage Indian strengths of diversity, adaptability with huge empathy.
For luxury or premium vehicles in particular, we must go into the psychology of a buyer. The buying behaviour may be classified into two broad categories:
- Authentic purchase: Where the buyer has a genuine need to buy a premium machine.
- Hedonistic pleasure: Where the buyer has other motives in addition to authentic purchase
Premium two-wheelers are a very specific purchase. Almost all buyers are into actual usage of the vehicle bought. OEMs must have bikes to suit every category of usage, unlike the commuter bikes. So while commuter bikes are for a fixed purpose of people movement from point A to B, high-end bikes cater to specific users. The result is, you have purpose built bikes for different needs. Like a bike for track usage, one bike for off-roading, yet another for city riding, so on and so forth. Typically then, bikers make their purchases after a careful study of motorcycles, basis their usage pattern.
Why this discussion about psychology and bike buying patterns? Given the usage and price brackets of the premium two-wheelers, they are a niche product and the buyers are also very specific and targeted. In fact, some riders are so specific that, come what may, they will not shift brand loyalties. They are also at the upper end of the pyramid, where finance/liquidity is not the primary issue. (However, it may be a temporary issue due to the overall economic scenario). Given the usage, passion and to top it all, new bike launches, both due to BS6 and new model year cycles, the propensity to purchase premium two-wheelers should therefore remain high. I wish to sign off on a positive yet cautious note and look forward to the earliest growth in the automotive industry.