Site icon Autofintechs – AFT

Why automakers in India bracing for parts shortage in 2021?

Automakers in India

Automakers in India are facing possible production loss due to cargo container crisis, majorly driven by Covid-19 disruptions, import-export imbalance.

It seems the troubles are not over yet for the automakers in India. The automakers in India are bracing for a parts shortage and also facing possible production loss over the next three to four months, as a result of the global shortage of shipping containers, as revealed by Society of Indian Automobile Manufacturers (SIAM).

Rajesh Menon, Director General at SIAM, said that shipping freight rates have surged since July 2020 and automobile companies are now finding it almost impossible to sustain normal trade operations. The concern looms large at a time when the automakers in India have just started recovering from the Coronavirus shock, which led to no sales period during the country-wide lockdown.

The automakers in India that are major exporters of parts from overseas will suffer dearly due to this container crisis. These include auto companies like Maruti Suzuki, Tata Motors, Volkswagen AG, Ford Motor etc.

Automotive Component Manufacturers Association of India (ACMA), the apex body of auto component manufacturers in India has said that in the new situation, major auto exporters are booking containers weeks in advance instead of days. “Companies may also be forced to absorb the price hikes caused by a spike in freight rates and coupled with the recent surge in raw material costs,” said Vinnie Mehta, Director General, ACMA.

Export by automakers in India in H1 FY21

Several automakers in India export a large number of vehicles to the overseas markets. These automakers in India include manufacturers of passenger vehicles, two-wheelers, three-wheelers and commercial vehicles. In the FY2019-20, more than 6.7 lakh passenger vehicles were exported from India and top 25 exported PVs contributed to 93% of the total vehicle exports.

In the first half (April-September) of FY21, Ford EcoSport compact SUV was the top exported passenger vehicle with 21,414 units shipped, down 38% from 38,593 units recorded in the same period in FY20.

Chevrolet Beat by General Motors and Kia Seltos were other two models in the top 3 exported PVs from India in the H1 FY21, with 16,630 units and 16,568 units shipped respectively. While the Chevy Beat recorded a 59% drop in exports during the timeframe, Kia Seltos rocked the list with a whopping 3,418% growth in shipping. The Kia Seltos was the third largest exported PV and also the number one exported mid-size SUV from India. The SUV is currently being exported to more than 40 countries in Africa, South America and South Asia.

So far, around 16 automakers in India export their vehicles to overseas countries. Hyundai, Maruti Suzuki, Kia, General Motors, FCA, Volkswagen are some of the major names among them. Overall, in the H1 FY21, passenger vehicle export from India dropped by 58%.

In the two-wheeler segment, during H1 FY21, automakers in India exported the motorcycles and scooters mainly to the markets in Asia, Africa and Latin America – 22.9%, 37.5% and 21.4% respectively. The major exporters in this segment include companies like Hero MotoCorp, Honda Motorcycles, Bajaj Auto, TVS Motor etc.

According to a study by India Ratings and Research, Bajaj Auto and TVS Motor Company will benefit from their exports-focused business model. Almost 49% and 26%, respectively, of these two company’s total sales volume, came from exports in the first half of FY21.

Auto component industry – A major exporter and importer

The Indian auto component industry is one of the major players when it comes to import and export. The sector, for the first time ever, has witnessed a trade surplus in the H1 FY21, with exports at Rs 39,003 crore ($5.2 billion), as revealed by the Automotive Component Manufacturers Association of India (ACMA). The exports of auto components were recorded at Rs 51,028 crore ($7.4 billion) in the corresponding period of FY20.

In its ‘Industry Performance Review’ for the H1 FY21, ACMA revealed that imports between April-September 2020 were at Rs 37,710 crore ($5 billion). However, it also said that exports and imports slumped by 23.6% and 32.7% respectively, during that timeframe.

Europe, which accounts for 31% of exports, recorded a decline of 28%, while North America and Asia, accounting for 30% and 29% of total exports, respectively, registered a decline of 28% and 30%, respectively.

What’s driving container shortage?

The global surge in demand for certain goods during the Covid-19 pandemic has increased the normal trade flows. This has resulted in the surge of empty cargo containers’ numbers and leading to bottlenecks.

One of the largest global container and logistics service provider companies, A P Moller-Maersk from Denmark, said that overall exports from India have bounced back strongly but imports have not so far. This has led to an imbalance in the inflow and outflow of cargo containers and causing shortage.

In the past few weeks, the company has nearly tripled the number of empty cargo containers they have been bringing from the Middle-East, as revealed by the firm’s South Asia head Steve Felder. The company is now repositioning the containers from pockets to those places where there is high demand. However, there is no sign of the return of normalcy before the second quarter of 2021.

Also Read: Indian manufacturing sector gets Rs 1.45 lakh crore boost under PLI

Exit mobile version