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Photo: Mint
Photo: Mint

Sales no more on autopilot, car companies pray for a break

Mint analyses the factors behind the sector’s worst slowdown as it struggles with changing paradigms

The Society of Indian Automobile Manufacturers holds its 59th convention today. The meet comes amid talk of an end to the era of the internal combustion engine. Mint analyses the factors behind the sector’s worst slowdown as it struggles with changing paradigms.

What’s the reason for the auto slowdown?

India’s auto market has been witnessing a sales decline over the last 13 months. This has become precipitous since the beginning of this fiscal. A combination of factors has hit the fortunes of the auto industry, which contributes more than 7% of the GDP of India. These include the introduction of new safety features and an increase in insurance premiums, resulting in increased total cost of ownership. Lack of finance options further exacerbated the situation for dealers and customers alike. The government also raised its pitch on ushering in electric mobility, further confusing customers.

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What was the impact of the NPA crisis?

The auto industry—especially auto dealers—depends significantly on banks and NBFCs for capital for short- and long-term expenses and investments. After IL&FS went belly up, banks, under pressure from RBI, tightened credit norms. Banks also stopped funding NBFCs, which used to provide credit to customers, as well as short-term loans to dealers in rural and semi-urban areas. This sudden slump in access to capital led to a sharp fall in sales from September last year. According to lobby group Federation of Automobile Dealers Associations, over 280 dealers shut shop across the country in the 18 months to April 2019.

What has the government done to arrest the slide?

The government has said all BS IV vehicles will be allowed to run till the end of their registration period. A 20-times hike in registration fee has also been deferred till 2020.

What are the other factors hurting sales?

The emergence of ride hailing apps such as Ola and Uber has hit car sales in metros such as Delhi, Mumbai and Bengaluru. Potential customers are increasingly opting against buying vehicles because of the lack of parking spaces and traffic congestion. Sales, therefore, have been stagnating in metro and tier-I cities for the last three fiscals. The government’s promotion of electric mobility has led to confusion among buyers, as most fear a possible ban on vehicles running on internal combustion engines to reduce pollution.

Why are two-wheeler and CV sales down?

Demand in rural markets has nosedived in last two quarters due to falling farm income and floods. Hence, there is a sharp fall in sales of motorcycles, especially of those at the entry level. The increased insurance premiums have led to higher costs, which has hit sales. The government has also revised truck axle norms, increasing freight carrying capacity of trucks by 25%. This has reduced the need for fleet owners to buy new trucks at time when freight availability is low from manufacturing, agri and infrastructure sectors.

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