Home >Companies >News >Auto industry growth to remain subdued unless acquisition cost of cars comes down: RC Bhargava

The auto industry may not witness a significant rebound sales unless India’s union and state governments come together to reduce the cost acquisition for customers which has increased substantially over the last few years due to various factors, said RC Bhargava, chairman, Maruti Suzuki India Ltd in the latest annual report.

The octogenarian though maintained that if there is no third wave of Covid infections then sales Maruti’s vehicles will surpass last year’s count despite the adverse impact of the explosive second wave of Covid infections in the first quarter.

India adopted multiple regulations on vehicle safety, emission and fuel efficiency in the recent years which led to increase in cost of vehicles. In past three years, features like anti-lock braking system and dual airbags were made mandatory in vehicle and auto industry leapfrogged to Bharat Stage 6 emission norms BS 4 norms in just three years. From FY 23, India will adopt a stricter form of Corporate Fuel Efficiency norms which is also expected to further push vehicle prices.

The union government implemented these regulations to reduce carbon emission from vehicles and improve safety of passengers.

“The slowing in the demand of cars is largely because the cost of acquisition by consumers has increased due to various reasons like regulatory changes, depreciation of the Rupee, increase in cost of raw materials and taxes imposed by State governments. The GST on cars, based on the past rates of excise duty, is much higher than the GST (or equivalent) in all other major countries of the world," said Bhargava.

He further added that it is unlikely that the car industry will experience reasonable rates of growth unless the central and State governments consider how to reduce the initial acquisition cost of cars.

The auto industry came under pressure from the first week of April when Maharashtra began strict lockdown measures. Delhi, Haryana, Karnataka, Tamil Nadu and others followed suit. Maruti Suzuki and other manufacturers either stopped production or reduced output significantly.

Some like Bajaj Auto Ltd, however, continued to operate with limited capacity to meet export orders. With a steady drop in infections, especially in north and south India, most automakers have resumed operations from the middle of May.

According to RC Bhargava the suddenness and ferocity of the second wave of the pandemic was a surprise to all and led to lockdowns and restrictions in most parts of the country. Production and sales again dropped and the recovery that had started in the previous quarter suffered a set-back.

“The performance in the next three quarters largely depends on how effectively all our citizens follow the government’s advice to get vaccinated and observe safety protocols. If we can avert the third wave, or substantially reduce its effect, and there are no further waves, economic activities and sale of cars can improve significantly over what was achieved last year," added Bhargava.

As the economic activity gained momentum after the first lockdown, Maruti witnessed robust demand for cars in the April to March period and the company increased production to record levels as consequence. Demand was mostly led by customer preference towards personal mobility to avoid Covid infection. As economy is gradually being unlocked after the second wave Maruti is witnessing similar demand for its products but production constraints due to semi conductor shortage might increase the waiting period on certain products.

Maruti reported a net profit of just 440 crore for the quarter ending June 30 due to the low base effect in the corresponding quarter when the company’s production and sales were impacted due to the stringent nationwide lockdown imposed to contain Covid pandemic. Sustained increased in prices of commodities like steel and other precious metals continues to impact the company’s operating performance.

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