The future of the Indian Automobile Industry

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The future of the Indian Automobile Industry
automobile industry

When Finance minister, Mrs.NirmalaSitharaman stated in 2019 that the current generation’s preference for cab aggregators like Uber and Ola was one of the primary reasons for the slowdown in the auto industry, there was a lot of furore in the media and the internet. A year later, after with the pandemic leaving economies everywhere in shambles, the outlook for the world’s 4th largest automobile industry looks even bleaker.

What is hurting the industry?

A multitude of factors such as an overall slowdown of the economy, 28% GST on automobiles, move to BS VI standard and the increasing popularity of the digital cab services contributed to the slowdown of the industry over the last 2 years but the pandemic delivered an unexpected jolt, making the recovery of the sector even more challenging according to Praveen Sinha of Pincap. In March 2020, the two industry leaders Maruti Suzuki and Hyundai both reported year on year declines of over 45% with Mahindra and Mahindra reporting an 88% decline in sales. With manufacturing and retail units shutting down due to lockdowns and people losing their saving balances every week, demand for a product that is still considered more a luxury than a necessity, fell to an all time low. Many carmakers didn’t sell a single vehicle in April 2020 and by June 2020, the year on year sales had fallen by 50%. A report estimates that it will take at least 4 years for the auto industry to see demand levels seen in March, 2018.

Speaking on the predicament of the Indian automobile industry, Praveen Sinha of Pincap said, “For demand to return, we need to restore the purchasing power of the end consumers which at this point in time is largely affected due to the economic scenario. There is also a need for a targeted stimulus package for the automobile industry and measures that can revitalize interest and investment.” These two factors above are important as in many places, public transport is still heavily disrupted due to the Coronavirus. Metro rail and local trains are still not functioning while city buses are not running at full occupancy. Even when these transport services are restored, citizens may fear using them during peak hours due to fear of infection. With safety being higher in your own vehicles, the inherent condition to trigger customer demand is prevalent.

How can the Government help?

Sinha outlined a few measures that could help arrest the downturn and help the industry recover in the coming quarters. The industry needs to see a reduction in GST rates. The current 28% GST is a deterrent to demand for both vehicles and components. Loan availability, attractive rates of interest and increased moratorium duration for existing owners will fuel positivity among the consumers. The much touted yet delayed Scrappage Policy needs to be incentivised and implemented which would encourage consumers to trade in their old cars for new ones. The Government should also consider providing direct liquidity support, particularly to the makers who have been affected the most by the pandemic. State governments can chip in by subsidizing arrear costs such as electricity, water etc. for the upcoming months to reduce pressures on the makers.

Positive signs from July

Rajesh Goel, Senior VP and Director, Sales and Marketing, Honda Cars India Ltd. said that July was a busy month for Honda with 3 new launches and restoration of manufacturing to 60% of pre-Covid levels. He expects the upcoming festive season to bring in the numbers for the industry and initiate it’s gradual recovery.

Recent financial figures from the month of July indicate a slight turnaround in sales with a recent update from the Maruti Suzuki management reporting that retail demand was back at 85% of pre-covid levels. These are encouraging signs and a show of support here by the Government can help fuel a V-shaped recovery for the automobile industry in the coming months, concludes Praveen Sinha Jabong Co-founder.

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