Will Alliances Continue to Drive Auto Industry in 2020?
It wouldn’t be an over-statement to say that 2019 has been an eventful year, if not to say an over-dramatic one. The declining pace of economic growth, the stories of company shut downs and pink slips, the crises in the financial sector and the worst ever incidence of unemployment meant that the past twelve months were memorable for all the wrong reasons.
These incidence of turmoil resulted in a change the way enterprises strategized. Business alliances or partnerships became crucial as companies went about scouting for partners who could fulfil some part of the strategy. Though alliances are not new to the economies across the globe, what attracted eye-balls in 2019 was the pattern of these alliances in automobile sector, especially in India.
It appeared as though it is a way to ride the recession (expected). This makes us ponder if this trend will continue in the coming year as well.
In the last quarter of 2019, we reported the collaboration between the two auto giants, namely, Toyota and Suzuki. This collaboration was inked right amidst the shrinking economy with a major impact on the automobile sector. Reportedly, the alliance’s focus was on their customers and development of human resources.
The two giants acknowledged the changing taste of customers and hence, joined hands to work together in new areas like electrification, and autonomous driving. A report published in the The HinduBusinessLine quoted the Managing Director of Toyota Kirloskar Motor (TKM), Masakazu Yoshimura to say that the collaboration between the two auto giants will intensify in the coming years and there is a lot of learning to do from each other.
While the companies claimed the partnership in the wake of bringing innovation to the automobile sector, it did signal as a way to counter the ongoing economic slowdown. The sale of the two was witnessing a downward graph and perhaps it was an attempt to cut their production cost down by sharing each other’s resources.
Alliance of Tata Motors-Chinese Firms
What brought us to discuss this topic again is the latest news of Tata Motors’ plan of having an alliance with the Chinese firms. According to a report published in the Mint, Tata Motors, the largest vehicle maker in India, is exploring an alliance opportunity with a few Chinese automobile companies.
The terms of the alliance are not clear yet as the conversations are in early stage only. However, as revealed by the report in the Mint, the alliance could look at the joint development of technologies such as electric mobility, sharing of manufacturing capacities, development of engines and platforms.
What is more important to note here is the fact that alliance could help Tata Motors to bring down its debt for its India business which stood at Rs. 23,365.49 crore as of 30 September, according to the Mint report.
This brings us back to the point that we made in the beginning, that alliances are becoming a crucial part of business strategy to ride the recession and cover up the losses. According to the wire agency PTI quoted by Economic Times, Fitch ratings has further cut down its growth forecast for India from 5.6 percent to 4.6 percent for the financial year 2019-20.
Talking specifically of the automobile sector, the stabilization is not expected anytime sooner. According to a report published in the Economic Times, the implementation of BS-VI norms are further going to cut down the demand and hence the production cut by up to 20 percent in the first quarter of 2020.
Considering this, it would be fair to predict the trend of alliances to continue as part of the business strategy in 2020 too.