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Domino Effect Of Auto Slowdown: Tyres Market Crash Lands

“The shutdown is only for two days, though some have been referring to a five day shutdown,” clarifies a worker of the Perambra plant on condition of anonymity to The Lede. “The other three days are scheduled holidays,” he says.

Both the plants of Apollo Tyres in Kerala – Perambra as well as Kalamassery – have been shut for the same number of days he says.

“A meeting was held a month back and we were informed that since the demand in the market is low, we will be halting production for two days. We were only producing at 75% of our capacity for some time now. Half day pay is being promised and if a leave is encashed, employees can avail full day pay for the two days. Till now we have not been told about any layoffs,” he says. “For now everyone is happy, as we are getting five days off. Hope all is well when we return,” he voices his anxiety.

The Perambra plant near Chalakudi in Thrissur district of Kerala, the first plant of Apollo Tyres to become operational and from where the company spread its wings far and wide, wears a deserted look when The Lede visited the plant.

“Only production has been halted, rest of us are all here,” an officer of Apollo says, pointing to the office. “We cannot answer your queries,” he says when asked about whether the company had any plans to lay off employees once they return. “You will have to talk to our head office in Gurgaon. We are just a production unit.”

The Gurgaon office, when contacted, issued the following statement through their spokesperson. “While the demand for our tyres in the replacement market is still strong, the slowdown in the vehicle sales has resulted in lesser demand from the OEs. Our production is tuned to the market demand and as such this has called for rationalisation from time to time. In the current scenario as well, there is a need to rationalise the production, including rationalising of the contractual manpower.

Having said that, we do hope that the good monsoons, the recent stimulus package by the government, and the ensuing festivals will see a turnaround in demand from the OEMs.”

While the company is quick to lay all blame for the slowdown on the OE market, as the original equipment market is referred to as, a ground check points to a different reality.

The replacement market, which forms a much larger share of the tyre market in the country has been shrinking too. And it is not about any one brand either.

The Replacement Market

From wholesalers to retailers, everyone says – “It is not looking good.”

“I was a distributor not so long ago and have become a retailer today because of the fall in business,” says Joshi Antony owner of Anugraha Agencies in Amballur near Thrissur. “It is very low.”

The downturn has seen him transition from a distributor to a retailer and a struggling one at that.

“I work on my own now,” he says stretching out his hands. “I have washed after last tyre change, but there will still be grease if you see. I used to have employees working for me. But I had to let go of them as I could no longer afford to pay salaries,” he says.

“It was painful to see them sitting idle when I am running everything using money I have taken on loan at an interest. So I let them go.”

“Demonetisation or GST, I don’t know which is responsible for sure even now,” he says. “GST looks like it can be good in the future. Now people are moving away from branded tyres. Second hand tyres as well as the cheaper China tyres find more takers.”

A sign widely prevalent across the country, marking changed customer preferences as well as the shrinking customer pocket.

“The stock just doesn’t move so I have stopped stocking up more than the most fast moving items,” says Joshi.

Joshi is not alone as Anish CK who runs a small retail shop too tells a similar story.

Running a small retail shop, Perfect 3D Wheel Alignment in Vellangallur, Anish says, “business is very less now. People have started to run vehicles by interchanging the tyres and all. I just stock up on fast moving items. Anything else, I pick them from a wholesaler as per customer demand.”

The trend of retailers avoiding stocking up started with GST says Sumin, in charge of a wholesale tyre shop specialising in car and bike tyres in Perambra, near Apollo’s first ever plant.

“They don’t stock up and naturally our business has fallen badly,” he says. “What used to be 100 tyres a day is now barely 20. The fall is steep here. There is no movement of stock,” he rues.

Another wholesaler John PA of PP Traders in Potta is clueless. “The number of vehicles on road has been increasing. But somehow it is not reflected in sales. Competition is also very high,” he reasons, trying to find answers to loss of his livelihood.

“The high competition means we have to reduce our margins,” says Paul Manjaly of United Tyres in Chalakudi. Paul who has been in the business for thirty years says that “there has been a 40-50% drop in sales.”

“What has affected us the most is the high GST rates. It not only inhibits customers from buying, it eats into our net profits. Earlier if we were able to buy 100 tyres, now we can only stock up 70 pieces. GST has affected our fundamental calculations,” he says. Before implementation of GST the rates were a flat 14 % he says.

Most businesses he argues were tuned to the earlier rates. “The costs for customers increased at the very time their paying capacity reduced,” he rues.

Paul who deals mostly with truck tyres is not alone in his opinion. His partner Joby MC agrees that “those in the replacement tyre market can’t survive unless there are immediate rate cuts.”

“Tax has to be uniform. GST implementation was very badly done. First they said tube and flap will have a fixed GST rate of 18%. We bought and sold at these rates but later, after a year they clarified that it is 28%. The manufacturers sent us bills to recover the additional 10%. Where will I recover the money of sold goods from?” he asks, angry at his plight.

Joby has reasons to be angry. “I was asked to pay Rs 7 lakh as tax not paid. Is this not enough to lead to business closures? There is no cash movement in the economy for people like us to be able to keep the cash rolling. As it is, people prefer cheaper Chinese tyres now. At least 60% of the tyres sold in Kerala are the Chinese variety. People can no longer afford the branded tyres. It is a simple fact. Second hand tyre market is seeing movement too,” he reveals the greater trend that has emerged.

Anto P who runs a truck tyre dealership which is more than 30 years old in Aluva in Ernakulam district says his business has dropped by 30%.

“The ban on quarries hasn’t helped either,” he says, referring to the ban on quarrying and crushing within the state which has frozen the truck tyre market. “I think only car tyre market is staying okay because of the Onam festival movement. Rest of us all are out of our depths,” he says.

“The general financial crisis and downturn has taken its toll. After GST came into being, business has reduced considerably. It is not about any one brand either. Nobody is buying.”

And that is the general consensus amongst all – wholesalers as well as retailers who know the replacement tyre market. If it is a sign of things to come, companies like Apollo maybe in for further setbacks.

Any change in the demand in the tyre industry will affect its input, rubber, which is also widely grown in Kerala. The downturn will continue its domino effect further down the chain.

If no corrective action is taken fast, the cascading effect this downturn will produce can destroy lives.

“We are just keeping it going in the hope that something will change and some positivity comes through,” says Paul Manjaly.

“I am honestly hoping for a miracle,” says Joshi Antony of Anugraha Traders. “I don’t see any other way I can survive.”

And that miracle, most replacement market traders say, has to start with the government forsaking the high GST rates and reviving the market by increasing profits for all involved. That seems like the starting point but it alone does not seem to be enough.

With companies like Apollo Tyres thinking of “rationalising of contractual manpower” more loss of jobs further down the line have to be factored in too.

As of now, the union of India appears to be struggling to grapple with this rapidly tumbling downturn. The measures announced thus far may not be enough to make the elephant stand up.

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