RSTV: THE BIG PICTURE- SPEED BUMP FOR AUTO SECTOR

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RSTV: THE BIG PICTURE- SPEED BUMP FOR AUTO SECTOR


Introduction:

            Automobile sales in India witnessed its sharpest decline in nearly 19 years in July, dropping 18.71 per cent, rendering almost 15,000 workers jobless over the past quarter. As per data released by the Society of Indian Automobile Manufacturers vehicle sales across categories, including passenger vehicles and two-wheelers, stood at 18.2 lakh units last month as against 22.4 lakh units in July 2018, down by nearly 19 per cent. The previous biggest decline across overall domestic automobile sales was recorded in December 2000 when it fell 21.81 per cent. Similarly, domestic PV sales also saw the biggest fall in nearly 19 years, slumping by 30.98 per cent from July 2018 to 2019. Previously, the worst decline was registered in December 2000, when wholesales had fallen 35.22 per cent. The fall in PV sales in July was also the ninth consecutive month of decline. SIAM said passenger car sales in July were also worst since December 2000 when the segment had declined by 39.86 per cent. Last month, domestic car sales were down 35.95 per cent at as against July 2018.

The Indian automobile industry, the world’s fourth-largest, has finally embraced a slowdown after a near decade of high growth.

 

Causes of slowdown:

  • Environmental factors:
    • Bharat Stage 6, more commonly referred to as BS6, is a standard of emission norms set by the government of India. These norms apply to both fuel and the engine.
    • Currently, BS4 emission norms are in effect and all car models sold today are compliant with it. The BS6 compliant engines would be less polluting in terms of the gases and particulate matter emitted from them.
    • By April 2020, the BS6 emission norms will come into effect and all car manufacturers will have to upgrade their engine offerings accordingly.
    • As a result, certain buyers are delaying their new car purchase until there are more details available regarding BS6-compliant model choices.
    • Availability of BS6 fuel across the country is another uncertainty of the public.
    • Whether carmakers upgrade existing engines to meet the upcoming BS6 emission norms or make new ones, it is a big investment. The extra cost will undoubtedly be borne by the customers as well in the prices of the final product – the car.

 

  • Financial liquidity
    • In the current economic environment, banks have become more strict about giving out loans, favouring only those individuals with high CIBIL scores.
    • Banks are also being stringent in lending money to dealers to capitalise their inventory. Often, the production numbers for car manufacturers are helped by their dealerships placing orders to stock up for potential customers. So, if dealers cannot get loans as easily, then they too will order fewer units
  • Global Phenomenon

Slowdown has been seen all around the world.

  • Big Cities Are too Crowded

Speaking of the hassles of owning a car, the first one to mind is that of being stuck in traffic. A large volume of car sales is driven by young, upcoming professionals with growing incomes and fewer liabilities. But even if you have the money to buy a car, you will likely spend a lot of your time driving it in congested traffic and/ or looking for a suitable parking space

  • There is too much going on in terms of changes and uncertainties regarding regulations and government policy, it is almost common sense to sit back and not act until things have settled down. The car industry today is in a similar state.
  • Even the government’s rhetoric surrounding electric mobility and electric vehicles leaves many uncertainties for both carmaker and buyers about what to invest in and more critically, when to invest.
  • Fall in incomes in the rural economy which led to a collapse in the demand and increased vulnerability.
  • Severe floods in many parts of the country have also been the reason.
  • The proposed deadline to convert vehicles to electric vehicles has created the confusion.
  • Higher and non-standard road taxes which have been too frequent and inconsistent.
  • Ever rising GST on automotive parts and vehicles.

 

 

Consequences:

  • More jobs being at risk.
  • Broader economy is experiencing a serious slowdown.
  • It has impact of steel and rubber industry too.

 

 

Way Forward:

  • Need to reduce GST atleast for entry level vehicles.
  • Liquidity has to be improved and measures should be taken so that the impact is seen in the market and reaches the end customers.
  • Limit has to be imposed on state government to levy road tax.
  • Saving rate has to be improved as long term measure which raises the purchasing power.
  • Nudge to improve exports.

 

 

Conclusion:

            As per the panelists the slowdown is temporary and is expected to pick up. The automobile sector is one of the few success stories that India has and perhaps the only one in manufacturing. If half the manufacturing GDP of the country is in doldrums and declining sales of cars, two wheelers and trucks will result in lower GST collections, the government’s already precarious fiscal math could worsen further in 2019-20. There’s a combination of frequent changes that led to this slump. Higher and non-standard road taxes, which have been too frequent and inconsistent have led to auto-makers having to increase prices of vehicles. Apart from this, the ever-rising GST on automotive parts and vehicles has also added to the woes of the industry. This has eventually led to customers shying away from buying these vehicles and a downturn in sales. Reviving the automobile sector should, therefore, become one of the top priorities of the government.

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