Increasing corona virus infection will have a negative impact on the domestic automobile industry in the near future. This will affect both sales and production. Domestic rating agency India Ratings & Research says that the city of Wuhan in China is the epicenter of the epidemic and that the city is the main center of production for automobiles and auto components. Factories in Wuhan are closed due to the epidemic, which has led to the import of essential commodities for the automobile industry. This is affecting production domestically.
The rating agency said in a statement that if the spread of Kovid-19 lasts for more than two months, it will affect the automobile industry not only domestically but also globally. Also, the automobile sector will face pressure not only from the supply side but also from the demand side and export front. The Indian auto component industry and equipment manufacturers are largely dependent on China. They import 27 percent of the parts and other essential items from China.
India Ratings said that production in the neighboring country is stagnant even after the Chinese New Year. This has created supply-related risks for domestic automobile companies. With the decline in domestic sales and margin pressures, if there is a setback from the supply side, the operations of companies in this sector could be affected. The problem of capital crisis may arise in front of them.
Fears of margin decline
The rating agency said in its statement that despite normal conditions, there is a possibility of a decrease of 0.3 times in the margins of domestic producers if supply-related problems arise. It further states that it is not easy for domestic automobile companies facing a steady decline in sales to overcome the epidemic on their own. To save this industry and enable it to deal with the epidemic, the government should take relief measures. In such a situation, like other governments, the Government of India needs to focus in this direction.