Auto slump continues, May sales see biggest dip in 18 years
Passenger vehicle sales in India declined by 20.55% in May compared to the same period last year, logging the steepest fall in nearly 18 years as the industry reeled from the effects of a credit slowdown, regulation changes and a slump in the economy.
According to data released by the Society of Indian Automobile Manufacturers (SIAM) on Tuesday, the slump in factory sales — vehicles sold by manufacturers to dealers — was recorded in all categories except light commercial vehicles.
“These things happen only because of an economic slowdown; the dip in sales began after the Kerala flood last year and the industry started swinging in the negative direction after the highest-ever increase in fuel prices,” said Vishnu Mathur, director general of SIAM.
Barring the month of October, 2018 — a period when sales see an uptick due to festivities — May was the eleventh consecutive month when sales of vehicles declined.
Passenger vehicle sales in May were recorded at 239,347 units, compared to 301,238 units in May, 2018. Such a drop was last seen in September 2001 when sales had dropped by 21.91%.
To be sure, election years have been accompanied with a cutback in discretionary spending such as buying cars. But Mathur added that this year’s decline was “unprecedented” even for an election season.
Dealers have been saddled with unsold stocks, while some others have been unable to pick up inventory due to banks and lenders cutting back on credit.
The credit problem has been a consequence of the crisis in the non-banking financial company (NBFC) sector – which has squeezed liquidity and made banks reluctant to offer loans.
According to experts, this has also affected prospective buyers.
“There are various parameters for the downturn. Has the income of people gone down? No. Has the appetite of people in buying cars gone down? Probably yes, especially with the NBFC crisis happening. The availability of loans that people had has slightly gone down. Much of the downturn in sales hence will be in entry level vehicles till the range of up to ₹7 lakh, with a 30% dip or so, as compared to luxury vehicles,” said Kushal Singh, partner, Deloitte India.
India’s gross domestic product grew at 5.8% in the January-March 2019 quarter, dragging down the full year growth to a five-year low of 6.8%. The Reserve Bank of India (RBI) in its latest round of Consumer Confidence Survey reported last week said the net share of respondents who think they will spend more, either now or a year from now, on non-essential items has fallen to an all-time low since September 2015, the earliest period for which this data is available.
“The growth that we saw for the last two-three years was majorly on the basis of demand from rural areas. The distress in farmers’ income and the agriculture sector for the past two years has started showing effects on the growth for the past eight months or so,” said Vinkesh Gulati, vice president, Federation of Automobile Dealers Association (FADA).
Other factors have also contributed, such as a shift to the new BS-VI emissions norms from April 2020, which has meant that manufacturers have held back launching any major upgrade to their products.
A new rule for insurance that effectively increases the final price of a vehicle has also been blamed. “The Supreme Court’s judgment mandating upfront three years’ insurance for cars and five years’ insurance for two wheelers led to a 7-8% rise in two-wheeler prices,” said SIAM’s Mathur, who also blamed the NBFC crisis for the problems.
“Due to an inventory pile-up, production has been cut down over the last few months because the industry wants to correct the inventory which takes time,” he added.
Contract workers have become the first victims of the slowdown since the industry employs nearly half of the labour through contracts. “Everyone is shutting down factories including auto companies like Maruti and Mahindra. This directly impacts contractual workers,” said Mathur, adding that the government must now step in.
“We need strong government intervention to put the industry back on track. We have made certain recommendations to the government for the upcoming budget,” he said. The recommendations include cutting the Goods and Services Tax (GST) on all categories of vehicles to 18% from 28% at present and the introduction of a vehicle scrapping policy that will encourage people to discard their old vehicles and buy a new one.