Vehicle sales numbers in July, the worst in 19 years, have reaffirmed the downturn in the automobile sector, coming on the back of over 286 dealership outlets downing their shutters in the last 18 months and at least 15,000 job losses estimated over the last quarter.
Industry players say the worst is still to come and that the of consumer demand and the liquidity crisis — could get prolonged as automakers compulsorily transition to new technologies, rendering their products more expensive.
Sales across categories, including passenger vehicles and two-wheelers, was down nearly 19 per cent at 18,25,148 units in July 2019, according to data released by the Society of Indian Automobile Manufacturers (SIAM) Tuesday.
No trend reversal
Automakers expect a respite this festival season. However, that could be a temporary relief and may not result in a trend reversal in the near future, given that prices are headed upward.
The previous biggest decline across overall domestic automobile sales was in December 2000, when volumes fell 22 per cent. While the current fall is being attributed to the crisis in non-banking financial companies (NBFCs) and the impending liquidity squeeze, the decline in customer confidence is one of the prime factors behind the continuous slide in sales of passenger cars.
What could make matters worse is the mandatory upgradation of products to meet the Bharat Stage-VI emission norms by April 2020, which has pushed companies to hike their prices.
A senior executive with a leading carmaker said that typically, a recovery from a cyclical downturn hinges on a discount push that stems from rising inventories. That option is practically ruled out this time because of the transition to new emission norms and upward push to prices.
For instance, India’s largest car-maker Maruti Suzuki, which has launched variants of some passenger vehicles compliant with BS-VI regulations, has priced such products Rs 10,000 to Rs 16,000 higher than its BS-IV-compliant cars. The increase in cost of manufacturing of BS-VI-compliant vehicles is especially higher for diesel-run engines, which led to Maruti Suzuki discontinuing sales of diesel vehicles from April 2020.
India Yamaha Motor said Tuesday that prices of its locally manufactured two-wheelers could increase by 10-15 per cent due to compliance with BS-VI emission norms. Sales of two wheeler vehicles — a key indicator for rural demand — declined 16.82 per cent year-on-year to 15,11,692 units in July.
Going ahead, two and three-wheeler manufacturers are also staring at the possibility of a compulsory upgrade to battery-powered vehicles by 2023 in case of three-wheelers and 2025 for two-wheelers. Bajaj Auto’s managing director Rajiv Bajaj had said that the proposal for electric vehicles was “ill-timed to target a date so close to BS-VI implementation”.
Industry executives also point out that the slowdown was despite customer interest failing to translate into a purchase decision. This is also reflective in a trend that appears to be gaining strength: The used-car market saw the sale of 40 lakh vehicles in 2018 to overtake the volumes for new cars at 36 lakh in the same year. In value terms, this market clocked almost two-thirds the business recorded for new cars last year — Rs 1.4 lakh crore for used cars versus Rs 2.2 lakh crore for new.
Industry association FADA, which represents about 15,000 dealerships and 26,000 outlets across India, said a total of 286 dealership outlets downed their shutters in the 18 month-period to July. The closure of retail outlets along with manpower downsizing across the 26,000 outlets has resulted in losses of about 200,000 direct and indirect jobs from May to July, adding to the 32,000 who lost their jobs in the prior 18 months ended April, according to the association.
“When BS-VI comes in next year, it will increase the cost of vehicles, especially diesel. But the priority right now is to look at current demand and ensure that the industry comes back on the growth path. You can’t avoid a price increase due to a regulatory aspect, and it has to be incurred into the cost,” SIAM director general Vishnu Mathur told The Indian Express.
“Our feedback is that customers are not coming into the showroom and whoever is coming, is taking a long time to convert to a sale. This downturn is not purely cyclical because cycles don’t last this long and something else also has failed. The costs have gone up and the incentive for a consumer is low and there is need for external intervention to kickstart the growth cycle,” Mathur said.
The deceleration in rural economy is showing up in the worsening slide in sales in the tractor segment, which had bucked the broader downturn to post a third consecutive year of double digit growth until March 2019.
Truck sales have been hurt by changes made by the government in the axle load norms. Industry officials said a significant decline in the sales of commercial vehicles has been visible ever since the increased load has become effective. The industry has been calling for a scrappage policy and other support measures to revive demand.
Last month, Ashok Leyland shut its manufacturing plant at Pantnagar in Uttarakhand for nine days until July 24 because of weak demand for commercial vehicles. The plant, which can manufacture 1.5 lakh units annually, was earlier closed intermittently for seven days between June 17 and June 29. Tata Motors is learnt to have decided to close its Pantnagar facility in July for a couple of days to ensure improvement in productivity.