Article: Indian auto industry hits rough road

Employee Relations

Indian auto industry hits rough road

The auto industry is having a tough time due to the slowdown in the sector with several companies shutting down their showrooms and handing over pink slips to a large number of employees. The scenario has turned out to be a nightmare for the contract employees as it has already written off more than three lakhs jobs.
Indian auto industry hits rough road

The auto industry in India is going through a major turmoil as the sector is facing its biggest slowdown in nineteen years. In July 2019, the sale of vehicles across categories in the country slumped 18.71% to about 18.25 lakh units, down from 22.45 lakh units, a year ago in the same month. On the one hand, the numbers of cars are increasing while on the other hand, the numbers of jobs are going for a toss in this sector. This slowdown has created havoc among the people working in this sector because the auto industry in India supports around 3.7 crore direct and indirect jobs and contributes over seven percent to India's GDP and nearly fifty-percent to the country's manufacturing GPD. 

According to, Vishnu Mathur, Director General of the Society of Indian Automobile Manufacturers (SIAM), the auto industry has witnessed 3.45 lakh job losses due to the slowdown. Nearly 300 dealership outlets have shut, resulting in 2.3 lakh people losing jobs. The auto component manufacturers are reporting the loss of almost one lakh jobs while original equipment manufacturers have sacked 15,000 workers," 

The Federation of Automobile Dealers Associations (FADA) also mentioned that around two lakh jobs have been cut across automobile dealerships in India in the last three months as vehicle retailers take to reducing manpower to tide over the impact of the sales slump. 

FADA added that with no immediate signs of recovery, the job cuts might continue with more showrooms being shut in the near future. The body has direct government intervention such as reduction of GST to provide relief to the auto industry.

"The revival of employment would lead to a revival of consumption and in a virtuous cycle that would get us closer to the 5-trillion economy that is our common goal"- Anand Mahindra

FADA President Ashish Harsharaj Kale said, "The majority of job cuts have happened in the last three months. It started around May 2019 and continued through June and July. Currently, most of the cuts which have happened are in front-end sales jobs, but if this (slowdown) continues, then even the technical jobs will be affected because if we are selling less then we will also service less, so it is a cycle."

As per Kale, around 2.5 million people are employed directly and around 26,000 automobile showrooms operated by 15,000 dealers. Another 2.5 million are indirectly employed in the dealership ecosystem. He added that the two lakh jobs cuts in the last three months are over and above the 32,000 people who lost employment when 286 showrooms were closed across 271 cities in the 18-month period ended April this year. 

Elaborating on the reason behind the close of dealerships, Kale said that the “margin of error” in the business in the past few years has really gone down with the cost almost doubling in the last three to four years. To avoid losses, dealers have been cutting down on costs other than manpower till March. However, the slowdown continued despite good election results and the Budget, which has led to dealers cutting manpower. 

As per Society of Indian Automobile Manufacturers figures, vehicle wholesale across all categories declined by 12.35 percent to 60,85,406 units in April-June as compared to 69,42,742 units in the same period of last year. Meanwhile, as per data based on registrations collated by FADA, retail automobile sales in the April-June period declined by six percent to 51,16,718 units in the first quarter of this fiscal as against 54,42,317 units in the year-ago period. No wonder, market leader Maruti Suzuki has also trimmed its temporary workforce by six percent this year.

The road ahead

Earlier in August, addressing the annual general meeting, Chairman of Mahindra Group, Anand Mahindra, said, "I do believe that kick-starting the auto industry with a few short-term measures will serve a greater national purpose." He feels that the most obvious and welcome first aid would be some temporary relief on the GST front, either by modifying the slabs or, if that is not possible, by removing the cess."

Mahindra added, "The revival of employment would lead to a revival of consumption and in a virtuous cycle that would get us closer to the 5-trillion economy that is our common goal." 

The chaos is witnessed across the country and especially from the manufacturing hubs such as Tamil Nadu, Jharkhand, Maharashtra, Gujarat, and other such states. The job scenario is not going to change until a major interference from the central government. In fact, the situation is expected to get worse in the coming days. According to a news website, the President of Centre of Indian Trade Unions (CITU) of Tamil Nadu chapter A Soundarrajan said that at least 5000 contract workers have been laid off as a result of a slowdown in production.

Managing Director of Mahindra and Mahindra, Pawan Goenka is also facing the heat of this slowdown. In a recent development, the automaker has laid off about 1,500 temporary workers since April 1st this year, adding that if the slowdown continues it will force to lay off more employees. 

The journey for this sector is not going to be a smooth ride as the roads are pretty rough. In July this year, the Automotive Component Manufacturers Association of India (ACMA) warned that 10 lakh jobs were at risk and urgent action was needed to bring the industry back on track. A major chunk of employees in these sectors work on a contract basis, and they are the one suffering the most in the current situation. Daily wage workers are not getting work, companies are shutting down their showrooms, and some days are no production days in many automobile companies. 

Trade pundits are expecting the situation to come back on track in the coming months, but this can only be possible if the GST rates are revised from 28 percent to 18 percent. Experts believe that the consumers are holding on to their automobile purchase until Bharat Stage VI (BS-VI) norms come into play. The vehicular emission norms will be implacable in India from April 1st, 2020. The consumers are waiting for good offers and also waiting to buy the BS stage VI vehicles. Hence there is a slowdown in demand which leads to less production. 

With the job scenario off the track in the auto industry, there are no definite signs in the coming months that can heal the job losses. Auto manufacturers are not upbeat about the upcoming festive season as well; they feel the demand during the festive season will remain slow, and hence they are giving ten-twelve days leave to the workers and production is the bare minimum. 

The industry is expecting the government to look into this matter and that is the only ray of hope for all the employees who have lost their jobs in last few months, and a large chunk is under immense pressure over losing their jobs.


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Topics: Employee Relations

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