Car makers won’t hold back on job cuts for long if demand slowdown persists: Pawan Goenka, MD, Mahindra

Vehicle manufacturers will not hold themselves back from cutting jobs if there is no immediate revival in demand, a top Mahindra & Mahindra (M&M) executive warned on August 6.

Several two and three-wheeler, car and SUV, truck and bus makers have been keeping their plants shut to avoid the unnecessary piling up of their stock since the past several months.

Pawan Goenka, MD, M&M said, “Employment is a big concern and there is a huge danger of job losses. They are happening in four areas — OEMs, suppliers, dealers and unorganized players like roadside garages. Of these, OEMs will be most reluctant to cut jobs because of their moral responsibility towards the society. But that can be the case only for sometime because if this situation continues then we have to start resetting the production lines.”

Resetting production lines to a lower level would mean requiring lower levels of manpower. Goenka did not comment if there have been job cuts at M&M, but he said that the company is taking production holidays.

“Right now we are shutting the plants only for a few days, which does not lead to job cuts. Job losses will happen when we have to reset the line to a lower capacity. SIAM has asked all OEMs to furnish data on job losses. The number presently is not small, but it is not scary”, said Goenka.

Companies including Tata Motors, Ashok Leyland, Maruti Suzuki, Honda Motorcycles, Honda Cars, Renault-Nissan have carried out production cuts in the past several years. Yet the dealer association have been complaining about high inventory days.

The Automotive Component Manufacturers Association (ACMA), the apex lobby body of the supplier industry, has estimated that 1 millions jobs would be lost if there is no improvement in demand. The Federation of Automobile Dealers Association (FADA) has said that 3 lakh people have been laid off in the last three months alone. These are over the 32,000 people laid off after the closure of 286 dealerships.

“One of the reasons why the auto industry becomes so important and requires swift action is because of its links with too many things. The industry is down by 20 percent, which means that the GST collection is down by 20 percent. And the auto industry contributes 15 percent to GST collection”, said Goenka.

The auto industry is seeking a cut in GST rates to the tune of 4-6 percent to tide over the downturn. The lobby bodies met finance Minister Nirmala Sitharaman on August 7 in Delhi to apprise her about the situation.

“In my career with M&M, this will be the fourth slowdown. Each of the earlier slowdowns, 2001, 2008 and 2013, which lasted for about six months, showed a turnaround after the excise duty was slashed. At that time the excise duty was cut by 3-4 percent. I hope the government listens to the industry and takes some positive steps”, said Goenka.

Subscribe to Moneycontrol Pro and gain access to curated markets data, exclusive trading recommendations, independent equity analysis, actionable investment ideas, nuanced takes on macro, corporate and policy actions, practical insights from market gurus and much more.