2 IN A BOX!

In this 2nd episode of "2 in a BOX" , we want to discuss..... Post Covid 19 - Market Dynamics, Movement of people and things

NK:Morning Rakesh, I know this is something which is close to your heart and you have been working on a lot on this . Was wondering we can start this week by understanding

How companies will pivot post Covid 19 , what will they do differently and how will end customers/consumers benefit. What are your customers thinking and saying ?

 RK: Good morning Nanda, I have been thinking along these lines too - to be frank, the end consumers – you, me & any common man has gone through multiple learnings during COVID times, which will add to the consumer behavior change.

"Needs" have starkly come out as compared to "Wants", I believe the spending will move towards "needs". This contributes to the "Demand Shift" side of the problem.

From any B2B/ B2B2C company's viewpoint, during COVID times, almost all the commitments from the customers are bound to change, due to supply / demand dynamics. Production in many companies have not started yet, & once if it starts, ramp-up plans are to be relooked, due to time & resource restrictions.

The cost of producing a same product will increase – which will be a bullwhip effect, with OH & margins increasing from Tier 3-2-1-OEM's etc. This forms the basis of "Supply Shift" side of the problem. 

Going with the typical, supply demand curve, when the quantity to be produced is under the discretion of end customers, (eventually reduced because of COVID reasons), demand curve shifts left, & because of supply restrained, supply curve shifts down. Market clearing price eventually should come down, also because money is not in the hands of people, while on the other side, cost of production increases.

The lockdown of economies creates scenarios in which private sector demand will fall and government interference in terms of economic stimulus and placing money for market restart will enable a slow reduction of the downfall. 

Coming back from microeconomic theories, every company is closely watching the situation, trying to really understand the key needs and consumer behavior changes, going back to drawing board & re-assessing strategies to pivot & overcome difficult times.

NK : Thanks, If I can be a little more specific and look at the CV segment ,I am looking at how a fleet operator in India would react to this scenario his cost to operate is going to increase am sure this is having a bearing on their profits as they do not have much scope to charge more from customers who themselves are struggling:. 

 In that scenario they have no option but to optimize their fleet (read sell/or even sublease it) and look at some revenue. 

 I was part of a webinar yesterday where a leading automotive ancillary player mentioned that there will be a market going forward for Used Vehicles and Ancilliaries e.g. Tyres. 

 But then the market always surprises us doesn’t it...? 

RK: Definitely, on all the aspects of (Source, Make & Deliver) – market dynamics have taken a hit and needs a restart. Especially, since fleet operators carry bulk of our day to day needs and any increment in their costs will have an effect on the market.

 It seems the asset utilization will try reach its high with services around it – Capital asset rotations and retirement will be measured and monitored effectively so as to reduce capital investments. Alternate revenue streams with governance methods increases (Ex – Maruti quickly joining hands to make ventilators, from ethical support and business angle). The whole equation of buying vs leasing vs renting will be relooked.

NK: Couple of points before we close,

I see a huge potential for b2b commerce given that Principals will be reluctant to spend on Capex intensive dealerships, existing dealerships too would be keen to be online given the low footfalls..

It would be also interesting to see how the new vehicle scrappage policy would impact the CV industry but we will leave it for a future episode.

Stay Safe!!!

 Meanwhile request all readers of this post to comment, critique and contribute, After all we are all on this together !!!