The automobile industry presently contributes 7.5% to the country’s GDP. The overall manufacturing sector contributes around 17% and the share of the automobile industry stands at 49% of the entire manufacturing sector. However, the automobile industry is facing major slowdown both at the global and the domestic level.
The global economy is expected to grow at 2.6% in 2019 as compared to 3% in the previous year. The US-China trade war is one of the major factors behind this crisis. Globally, the demand and production of automobiles declined in 2018, for the first time since 2009. A similar decline in demand and consequent production cuts is noted in India. Rural distress, slowing consumption and the liquidity crunch caused by the NBFC crisis have negatively affected the automobile industry.
According to a letter written by the Society of Indian Automobile Manufacturer (SIAM) to the finance ministry, 70% of two-wheeler sales and 60% of commercial vehicles sales are financed by NBFCs. The declining sales figures show that the crisis in the NBFC sector has hit the automobile industry hard. Also, the government's push for electric vehicles has left the potential buyers confused.
The festive season in India has, over the years, given a strong boost to the automobile sector. Given the sluggish market trends, players in the automobile sector will be keen to make the most of this festive season.
Boost to industry?
Seon Seob Kim, Managing Director and Chief Executive, Hyundai Motor India recently informed, “The festival season might be a great opportunity for Hyundai and all other original equipment manufacturers (OEMs) in terms of recovery of demand and revival. In many areas, the customer sentiment is subdued and we are preparing interesting customer communication programmes.”
Abhisekh Kejriwal, Administration Head, OSL Motocorp, told BE, “Dhanteras is definitely going to boost the automobile sector. The percentage of sales is increasing and we have cars ready in our stock, so we can deliver the products whoever is interested to purchase.” However, inventory pile up has taken drastic proportions and is a matter of concern for the industry.
Sukanta Mukherjee, General Manager, Sales, Mukesh Hyundai, informed BE, “The speciality of Dhanteras and Diwali lies in the fact that the vehicles which were booked during the festive season, before and after the Pujas, are delivered on these days.” Mukherjee further stated that there may be better sales during the festive season but sales figures should be compared to the figures of the previous fiscal to understand the industry situation. He added, “Our aim this year is to reach near the sales figures of previous year, as due to the slowdown, the sales are not expected to cross the previous year’s figures.”
According to industry sources, India’s leading automobile manufacturers recorded their worst Diwali in 2018. Rising fuel prices, higher interest rates, insurance costs and choppy stock markets impacted the market negatively. In 2018, as per industry estimates, retail off-take of two-wheelers dropped by 10-12% while retail demand for passenger vehicles were estimated to have declined by 0-5%. Manufacturers resorted to heavy discounting to push sales of heavy commercial vehicles (HCVs).
Mukherjee said, “Hyundai has initiated a new scheme for discount last month with the festive season in mind. Hopefully, an enhanced version of the scheme will be sent this month. These schemes will definitely increase our profit. If the number of cars sold increase due to this discount scheme, then the profit per car may reduce but the overall profit will increase.”
The Indian Finance Minister has not conceded the pressing industry demand to bring down the GST rate to 18%. However, measures such as accelerated depreciation of 15% (making it a total of 30%) for vehicles acquired till March’20 and deferment of proposed increase in registration fees for new vehicles to June’20 are expected to have a positive impact on the market. With a view to bring in more liquidity, Public Sector Banks (PSBs) will get an upfront funding of Rs 70,000 crore through government initiated recapitalisation. This might positively impact the automobile segment.
The Finance Minister Nirmala Sitharaman has pushed for repo rate-linked products by the banks, to ensure better transmission of rate cuts. With repo rate at 5.4%, a nine-year low, such a move would ensure cheaper credit to consumers. This, together with the budget announcement of partial credit guarantee of Rs 1 lakh crore to PSBs for the purchase of high-rated pooled assets of financially sound NBFCs, is expected to bring in more liquidity to the market and give a fillip to the automobile industry.