Crisis Continues in Automobile Industry: 2 lakh Job Cuts in Last 3 Months

As the ailing Indian automobile industry faces deeper crises due to prolonged slowdown of the economy, the latest report from the industry says that around two lakh jobs have been cut by automobile dealerships across the country in the last three months. The layoffs have occurred since the vehicle retailers are forced to opt for the last resort of cutting manpower to tide over the impact of the unprecedented sales slump.

With no immediate signs of recovery, the Federation of Automobile Dealers Associations (FADA) fears that the job cuts may continue in the near future with more showrooms being shut and has sought immediate government intervention – such as reduction of GST – to provide relief to the auto industry.

“The majority of job cuts have happened in the last three months. It started around May and continued through June and July,” FADA President Ashish Harsharaj Kale told PTI.

He further said, “Right now, 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.”

“It is a guesstimate that our members have already cut 7-8% of the jobs in most of the dealerships as the de-growth has been very high,” he added.

Read more: Over 10 Lakh Jobs in Danger as Automobile Industry Stares at Deeper Crisis

Around 2.5 million people were employed directly through around 26,000 automobile showrooms operated by 15,000 dealers. Another 2.5 million are indirectly employed in the dealership ecosystem.

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, he added.

Stating that more dealerships have closed in the past three months, Kale said, “We are collating the figures again. In a few cases, some (dealers) have gone for closure of outlets, not the main outlets but those which were put up anticipating some geographic reach.”

Elaborating on reasons for taking the drastic step of cutting jobs, he said 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.

“The margin that we earn overall as a business has not gone up. Therefore, if we go into a degrowth situation, we get into cash loss. So, to avoid that, dealers have been cutting down on costs other than manpower. Till March this year, none of the dealers went for any manpower correction because we thought this was a temporary slowdown, and it will soon recover,” he said.

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However, he said, “The way the first quarter has panned out despite good election results and the Budget, the degrowth continued. It is clear now that a proper slowdown has hit us. Now dealers have resorted to cutting manpower.”

Terming manpower as ‘the most precious resource of dealers’, Kale said, “That is the last thing we try to cut down. When the slowdown started, we first decided that we should go for stock reduction. Most of OEMs have supported us. While cutting other variable expenses that we can, we did not touch manpower till March and almost mid-April.”

Ruing the loss of jobs, he said, “It is the last resort because it is difficult to get the manpower. We invest a lot on training them because it is a peculiar industry, whether it is a technical or a field job.”

As per the Society of Indian Automobile Manufacturers (SIAM) figures, vehicle wholesale across all categories declined by 12.35% to 60,85,406 units in April-June against 69,42,742 units in the same period last year.

On the other hand, as per data based on registrations collated by FADA, automobile retail sales in the April-June period declined by 6% to 51,16,718 units in the first quarter of this fiscal as against 54,42,317 units in the year-ago period.

Passenger vehicles (PV) segment has been the worst-hit with sales continuing to decline for almost a year now. In July, market leader Maruti Suzuki reported a 36.3% drop in its domestic PV wholesales, while Hyundai saw a dip of 10%.

M&M sales were down by 16%, Tata Motors’ PV sales fell 31% while that of Honda Cars India Ltd (HCIL) also came down 48.67% during the month.

Seeking immediate government intervention, Kale said, “We are hoping, from whatever we are hear that the government has taken note of the serious situation that is going on in the overall economy, specifically with the auto sector. We are hoping for some support for the auto sector in the next few days or week or two.” He said that the auto industry has already put out a request for GST cut.

Last week, the Automotive Component Manufactures Association (ACMA), an apex body representing the interest of the Indian auto component industry which alone employs around 50 lakh people, said that around 10 lakh jobs could be on the line if the slowdown in the automobile industry continues.

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Foreseeing the situation, the general secretary of All India Road Transport Workers' Federation (AIRTWF), which is affiliated to the Centre of Indian Trade Unions (CITU), KK Divakaran had then said that along with the people who are employed directly in the industry, workers in related service sector include small-scale dealers, workshop owners, mechanics, etc. will also be rendered jobless if the crisis continues. That’s what is happening in the automobile industry now.

Along with the existing crises, subdued demand, recent investments made for transition from BS IV to BS VI emission norms, lack of clarity on electric vehicle (EV) policy has left the industry unsure of its future and has caused it to stop all future investments, said Ram Venkataramani, president of Automotive Component Manufactures Association (ACMA).

Divakaran has also observed that the push for electric vehicles won’t help the industry. Because the components are being imported and only the assembling of components is happening here.