Indian Automobile sector to lay off of 8-10 lakh employees

The car sales in India has dipped 16 per cent in April, the worst fall in eight years. The primary reason for decline in auto sales and the reason could be drop in purchasing power of people, caused by a sustained rural distress continues primarily because of stagnation in rural wages. Falling food prices have meant that farmers are unable to even recover the cost of their produce. Resulted, there is production cut of 20% by OEMs then there is job losses across the value chain of component manufacturers.

The decline in growth in the auto industry over the past 11 months has affected the components and ancillary industry as well. The expert says, it will result in the laying off of 8-10 lakh contract employees in recent months in the auto parts sector. As per the official at the Automotive Component Manufacturers Association of India (ACMA), the job losses are happening largely because of the slowdown in the auto industry and in the major hubs including the Gurugram-Manesar, Haryana, Pune, Jamshedpur (Jharkhand) and some parts of Pithampur (Madhya Pradesh).

The job cuts are happening around the hubs and by at least 10-15 per cent in each of the companies. The entire Haryana belt is suffering. There are around 50 lakh workers in the auto components industry and around 70 per cent of them are on contract. Says, Vinnie Mehta, Director General, ACMA.

In 2018-19, overall vehicle sales fell by 8 per cent, with total retail sales accounting for 16,82,656 units compared to the 18,21,538 vehicles sold in March 2018. All categories have seen 'de-growth' since March 2018, one of the biggest months for retail sales that year.

He said the losses are a ‘trickle-down’ impact of the slowdown in the auto industry, especially passenger and commercial vehicles makers, and if this continues, more lay-offs are expected. The two-wheeler sector is doing fine now, but one can’t be sure for how long, he further said.

As per our survey, by interacting with Top 100 CEO from the ever-growing Technology sector, Demonetisation has a long-term effect and it is going to continue for another 5 to 7 years. It was a deep phenomenon that impacted the psyche of people. This has led to people postponing car buying or going in for second-hand cars that come cheaper. Maruti have kept a lower growth target this year, and have lowered production. Maruti has also announced that it will phase out diesel cars from April 2020 and leading auto parts maker Bosch had to close its factory for five days recently and would continue at least till April next year.

As per Nielsen has lowered its growth projection for India's FMCG market to 11-12 per cent in 2019, down from 13.8 per cent in 2018. Rural distress and a short supply of money following the IL&FS imbroglio are cited as reasons for the slowing growth.

Another reason is , the auto industry is witnessing a big technology disruption, as the new regulations to come next year. From April 2020, automobiles will have to be complaint with Bharat Stage VI, an emission control standard that will replace the existing Bharat Stage IV norms and bring India on par with advanced countries such as those in Europe and the US. "The cost of meeting the new regulations, including BS VI, and other safety norms such as air bags will be higher.

The analysis says, as the contract employees are more in numbers, there is some dilemma on the regular ones, too, as there is not much work in the factories due to poor demand from original equipment manufacturers, Mehta said.

Lastly, the industry needs urgent government intervention. There is an immediate need to stimulate vehicle demand and also sustain it post BS-VI implementation, as vehicles will become significantly expensive thereafter,” said Ram Venkataramani, President, ACMA.