Auto industry may cut R&D costs due to coronavirus

aniketi · 3rd May 2020, 20:28

Sad news for Auto Industry.

The domestic automobile industry might resort to cuts in spending on research and development (R&D) and also exit unprofitable businesses and segments with the coronavirus pandemic taking a toll on companies' revenues and cash flows, according to a report by Deloitte.

The reduction in R&D activities may impact progress made in the alternative fuel technologies till now, the report noted.

"The COVID-19 lockdown has had a multiplier effect -- the industry has been at a complete standstill since March 24. A prolonged truncation of consumer demand due to the lockdown is significantly affecting auto sector revenues and cash flows," Deloitte India Partner and Automotive Sector Lead Rajeev Singh said.

In response, companies may resort to starving their R&D funding in order to sustain core operations, and potentially set back the progress made on alternative fuel and mobility technologies by 2-4 quarters, he added.

"Eventually, some companies may even choose to take a strategic call to exit unprofitable markets and vehicle segments," Singh said.

The auto industry in India has already undergone considerable slowdown over the past 12-18 months due to structural changes beginning with goods and services tax (GST), shift to shared mobility, axle-load reforms, the BS-IV to BS-VI transition and liquidity crunch, he noted.

Read more at -
https://m.economictimes.com/industry...w/75517713.cms

darkLightning · 3rd May 2020, 21:18

Quote:

Originally Posted by aniketi

"Eventually, some companies may even choose to take a strategic call to exit unprofitable markets and vehicle segments," Singh said.

I personally feel this particular point is a blessing in disguise if it translated to companies sticking to their strengths and focusing on evolving them instead of making unnecessary ventures thereby neither being able to fully focus on their existing strength or on the new venture. Also this is applicable across all types of Automotive.

A few case in points being -

1. Royal Enfield considering a 250 cc motorcycle - They will be better of focusing their funds and R&D on improving their existing reliability issues and some weight loss program.

2. Nissan considering Patrol SUV for India - It's a niche product and anyways being limited to under 2500 rule this can wait even 2-3 more years and result is still going to be the same.

3. Maruti Suzuki planning 5 door Jimny - You are anyways going to make 3 door Jimny in India why not launch that first and if customer demands are enough then think of 5 door version. There really is no competition in near future at least for Jimny with Thar almost sure to be priced a segment above (with more power to flaunt off course).

My experience in IT sector has taught me with thing it is always good to do all sorts of research but deploy only those which are either profitable (Focus your R&D on increasing safety Maruti) or backed with solid market research for profitability(Just plonk that 650cc Engine in Himalayan, Royal Enfield).

1.2TSI7DSG · 4th May 2020, 12:37

While I am in line that spending on Technology will reduce, I don't think investments in Products will reduce. Marquee/profitable products will attract higher investments. Struggling products will be shot and killed. It actually is a good time for companies to rationalise the product portfolio. Esp people like Mahindra, Maruti who have high low burner products can take the opportunity and close them. For the time being, I don't expect too many drastic changes in proven products lest to disturb them, experimental products will continue to spruce up but the tech input/changes will be minuscule. And of course, now the Vendor Development & Cost reduction Teams are the stars of the show!

GTO · 5th May 2020, 15:50

There are 3 things that a company can do, due to such a tragedy:

1. Cut costs (most will).

2. Keep costs the same (some will).

3. Increase investments (few will).

I belong to the 3rd line of thought. At such a time, most of your competitors have gotten weaker. If you have the liquid cash, there is no better time to double up on investments, make your offering superior & increase market share. Someone like Maruti will definitely think along these lines.

3rd May 2020, 20:28	#1
aniketi Senior - BHPian Join Date: Sep 2009 Location: Pune Posts: 2,025 Thanked: 2,881 Times	Auto industry may cut R&D costs due to coronavirus Sad news for Auto Industry. The domestic automobile industry might resort to cuts in spending on research and development (R&D) and also exit unprofitable businesses and segments with the coronavirus pandemic taking a toll on companies' revenues and cash flows, according to a report by Deloitte. The reduction in R&D activities may impact progress made in the alternative fuel technologies till now, the report noted. "The COVID-19 lockdown has had a multiplier effect -- the industry has been at a complete standstill since March 24. A prolonged truncation of consumer demand due to the lockdown is significantly affecting auto sector revenues and cash flows," Deloitte India Partner and Automotive Sector Lead Rajeev Singh said. In response, companies may resort to starving their R&D funding in order to sustain core operations, and potentially set back the progress made on alternative fuel and mobility technologies by 2-4 quarters, he added. "Eventually, some companies may even choose to take a strategic call to exit unprofitable markets and vehicle segments," Singh said. The auto industry in India has already undergone considerable slowdown over the past 12-18 months due to structural changes beginning with goods and services tax (GST), shift to shared mobility, axle-load reforms, the BS-IV to BS-VI transition and liquidity crunch, he noted. Read more at - https://m.economictimes.com/industry...w/75517713.cms Last edited by BlackPearl : 3rd May 2020 at 20:43. Reason: URL tag added. Thanks.
	(6) Thanks

4th May 2020, 12:37	#3
1.2TSI7DSG BHPian Join Date: Nov 2015 Location: MH01/TS09 Posts: 731 Thanked: 1,852 Times	re: Auto industry may cut R&D costs due to coronavirus While I am in line that spending on Technology will reduce, I don't think investments in Products will reduce. Marquee/profitable products will attract higher investments. Struggling products will be shot and killed. It actually is a good time for companies to rationalise the product portfolio. Esp people like Mahindra, Maruti who have high low burner products can take the opportunity and close them. For the time being, I don't expect too many drastic changes in proven products lest to disturb them, experimental products will continue to spruce up but the tech input/changes will be minuscule. And of course, now the Vendor Development & Cost reduction Teams are the stars of the show!
	() Thanks

5th May 2020, 15:50	#4
GTO Team-BHP Support Join Date: Feb 2004 Location: Bombay Posts: 71,603 Thanked: 310,274 Times View My Garage	Re: Auto industry may cut R&D costs due to coronavirus There are 3 things that a company can do, due to such a tragedy: 1. Cut costs (most will). 2. Keep costs the same (some will). 3. Increase investments (few will). I belong to the 3rd line of thought. At such a time, most of your competitors have gotten weaker. If you have the liquid cash, there is no better time to double up on investments, make your offering superior & increase market share. Someone like Maruti will definitely think along these lines.
	(2) Thanks