RECENT SLUMP IN INDIAN AUTOMOTIVE INDUSTRY

INTRODUCTION
The Indian auto industry became the 4th largest in the world with sales increasing 9.5 per cent
year-on-year to 4.02 million units (excluding two wheelers) in 2017. It was the 7th largest
manufacturer of commercial vehicles in 2018.
The automotive industry accounts for 45% of the country’s manufacturing GDP, 7.1% of the
country’s GDP and employs about 19 million people both directly and indirectly.
India is also a prominent auto exporter and has strong export growth expectations for the near
future. Automobile exports grew 14.5 per cent during FY 2019. It is expected to grow at a
CAGR of 3.05 per cent during 2016-2026. In addition, several initiatives by the Government
of India and the major automobile players in the Indian market are expected to make India a
leader in the two-wheeler and four wheeler market in the world by 2020.

CURRENT SCENERIO IN AUTOMOBILE INDUSTRY

The Indian automobile industry, the World’s fourth-largest, has finally embraced a slowdown
after a near-decade of high growth. On May 13, the Society of Indian Automobile
Manufacturers (SIAM) announced a 17 percent decline in passenger vehicle sales for April,
the lowest in nearly eight years.
According to the data from SIAM, car sales are down for the tenth consecutive month since
July 2018. Overall, the auto industry sold 2,001,096 units during April. In the same period
last year, it had sold 2,380,294 units.

REASONS FOR SLUMP IN AUTOMOTIVE INDUSTRY

A combination of factors worsened the industry’s prospects:

Severe liquidity crunch due to the IL&FS crisis since late last year and
A simultaneous increase in ownership costs, an overall weak economy affecting
demand and
Now, severe floods in some key vehicle buying states further hurting demand.

The impending deadline of mandatory transition to the Bharat Stage VI (BS VI) emission
norms is another irritant.

To top it all, the face-off between the industry and the policymakers over a proposed
deadline to convert some vehicle categories to electric from the present internal combustion
engine (ICE) technology obviously did not help either.

The government has been considering a proposal to ban all ICE-driven two-wheelers under
150cc in the next six years and all three-wheelers within four years.
 RECENT SLUMP IN INDIAN AUTOMOTIVE INDUSTRY
More than three in four vehicles sold in India currently would be impacted if this proposal
were to be implemented and the automobile industry has mounted a quiet revolution against
this proposal.

According to the Supreme Court of India, from deadline is April 1, 2020 onwards, no motor
vehicle following the currently existing BS IV norms will be allowed to be sold across the
country.

On the emission transition, the deadline is April 1, 2020 and this too is a major pain point
for vehicle makers.

The new emission standards would require technological overhauling, particularly for the
diesel cars. With the expected rise in the price of diesel cars, its price gap with the petrol cars
is estimated to be at a maximum of ₹ 2.5 lakh. However, the largest price differential, at
about 50%, is likely to be seen in the small car category. In tandem, the overall share of
diesel cars in total domestic sales is estimated to drop to 28% from the current 40%. But, the
decline in diesel car sales has been underway since 2012–13, when this category was a
market leader by constituting almost 60% of the sales. A major reason for this is the declining
differential in petrol and diesel prices from ₹ 40 a litre in 2012–13 to almost ₹ 17 in 2017. In
such a setting, particularly in the face of escalating input costs, the average gross margin of
the top eight automobile manufacturers in the country fell by less than 1% to be at almost
34% in the financial year 2018. This gives rise to the scepticism about the high levels of
operating margins of the automobile manufacturers.

Bajaj Auto, the second largest two-wheeler maker in the country, has described
this mandatory transition to BS VI from next fiscal as the “joker in the pack” while
providing a positive outlook for its business in the current fiscal.

However, it is difficult to anticipate the state of BS VI readiness of our competitors. If

some, or most, of them have a large stock of unsold BS IV vehicles in the second half
of FY2020, they will perforce have to dump these in the market before the advent of 1
April 2020.
That could trigger an unwarranted price war, to the detriment of all. We cannot claim
that such a scenario will definitely play out; equally we cannot ignore a distinct risk
overhang on that account.
This scenario will likely play out for other vehicle categories too, making the industry
even more competitive than it already is and skewing price points.
The chairman of Maruti Suzuki India, has already said that his company’s decision to stop
producing vehicles with up to 1.3 litre diesel engine capacity was taken keeping in mind
the rising cost of compliance with newer emission norms.

Also, increasing in Goods and service tax (GST) in vehicles is one of the major reasons in
slump in automotive industry. The industry has been asking for a blanket reduction of GST
on all category of vehicles. Currently, automobiles are bracketed under the highest slab of 28
 RECENT SLUMP IN INDIAN AUTOMOTIVE INDUSTRY
per cent. Further, an additional cess ranging between 1 and 22 per cent is also imposed on
cars. Industry wants a standard rate of 18 per cent.

IMPACT IN INDIAN ECONOMY DUE TO SLUMP IN AUTOMOTIVE INDUSTRY

Automobile stocks have borne the brunt of slowdown which has gripped the sector during the
last one year. Sales in auto sector have fallen in 12 of the 13 months since July 2018
signalling sharp slowdown in demand in the world's fourth-largest automobile market.
Mirroring the weak consumer sentiment and slowdown in the sector, S&P BSE auto sector
index fell 35% during the last one year, with home-grown Tata Motors losing 55% in the
same period. NSE's Nifty Auto index too fell 36.70% during last one year.
Other auto stocks such as Maruti Suzuki (33%), Mahindra and Mahindra (46%), Ashok
Leyland (50.31%). Hero Moto Corp (19%) and TVS Motor (31.21%) have logged substantial
losses during the last one year. The only exception among auto stocks was Bajaj Auto which
saw a rise of 1% during the period on BSE.
Stocks of auto component manufacturers also took a hit. Motherson Sumi, the manufacturer
of automotive wiring harnesses, mirrors for passenger cars and a leading supplier of plastic
components and modules to the automotive industry, saw a 53% fall in its share price during
Last one year. Similarly, Minda Industries, tier-1 supplier of automotive components, too lost
23% during the last one year. Bosch, another auto component manufacturer, fell 27.56%
during the period.
According to industry body SIAM, the entire auto sector is reeling under a prolonged slump,
affecting vehicle sales across all segments. In July, wholesale passenger vehicle sales fell for
the ninth straight month amid overall slowdown in the economy.
Retail sales of automobiles fell 6% year-on-year to 1,65,4535 units in July 2019 compared to
1,75,9219 units, according to data released by Federation of Automobile Dealers
Associations (FADA). FADA this month said around two lakh jobs had been cut across
automobile dealerships in India in the last three months as vehicle retailers take the last resort
of cutting manpower to tide over the impact of the unprecedented sales slump. The two lakh
job losses in the last three months are over and above the 32,000 people who lost
employment when 286 showrooms were closed across 271 cities in the 18-month period
ended April this year, said the body.

HOW SWIFT THE RECOVERY CAN BE?

Mahindra Group Chairman Anand Mahindra Wednesday said lowering GST on automobiles
would help the economy, stating that the auto industry has a huge multiplier effect on small
companies and employment. Earlier this month, the Society of Automobile Industry (SIAM)
had sought reduction of GST on all vehicles to 18 per cent from the current rate of 28 per
cent in the upcoming Budget.
The recent transition that made from BSIV to BSVI, there is no clarity in policies for
electrification vehicles. For that industries are unsure about its future and that led to stop all
the future investments.
If Govt. helps at this stage before the festive season than there is a chance of recovery
because customers emotions has subdued due to increase in insurance policy, registration etc.
 RECENT SLUMP IN INDIAN AUTOMOTIVE INDUSTRY

REFERENCE:
Ibef.org
Forbesindia.com
Economic times
Business today