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Auto sector: A roller-coaster ride as govt and apex court serve a triple-whammy

G BALACHANDAR Chennai | Updated on January 27, 2018 Published on December 26, 2017

Quick to recover The passenger vehicle segment managed to come out of the effects of all the three disruptions earlier than the other categories. File photo shows a showroom in Tiruchi

Demonetisation, BS-III vehicle ban and GST rollout made for a bumpy journey, but the industry bounced back after each disruption

The year has been among the most challenging in recent times for the automobile industry in India, with three major disruptions in quick succession.

But the industry proved its resilience by getting back into growth mode after every disruption.

The year started off on a negative note for the industry, what with the slowdown in sales following the demonetisation move in November 2016.

While the later part of January saw signals of revival in urban markets, the rural markets continued to feel the pain of the note-ban.

The passenger vehicle segment managed to come out of this quickly, led by Maruti. However, other segments such as commercial vehicles and two-wheelers continued to suffer.



The two-wheeler industry was hit the most, particularly in the rural-dependent commuter motorcycle segment, where purchases are largely made through cash.

It was a double whammy for the commercial vehicle sector, which was already reeling under subdued demand.

Since the trucking industry is also one of the largest unorganised cash-driven sectors, the first two months after demonetisation saw plenty of operation hassles and postponement of purchases.

Even as the auto industry battled to come back on track, the second disruption came with the Supreme Court ban on BS-III vehicles from April 1. However, this move provided some respite with dealers across the country offering high discounts and offers to sell old BS III vehicles (especially during last the three days of March). This offset the negative impact of demonetisation to some extent.

Passenger vehicles exhibited strong resilience with high single-digit growth in March, while volumes in two-wheelers and commercial vehicles were better owing to higher discounts offered.

Single-tax regime

The third disruption came by way of GST implementation. In June, due to the run-up to the single tax regime, customers deferred purchases and vehicle dispatches to dealers were hit.

Yadvinder Singh Guleria, Senior Vice-President, Honda Motorcycle & Scooter India, recalled that reeling under the demonetisation effect, the two-wheeler industry declined in the first two months of 2017.

The court ruling on transition to BS-IV saw the industry remain stagnant in March too, he said.

With monsoon and the 7th Pay Commission disbursement, the two-wheeler industry saw growth return in April and shoot up to double digits in May.

But the GST transition saw industry growth slow down once again to 4 per cent in June.

“With normal monsoon and positive buying sentiments ahead of the festival season, the Indian two-wheeler industry saw demand return in full force in double digits.

Overall, despite the many disruptions, the industry grew 7 per cent in 2017 (January-November) over 2016,” said Guleria.

The CV industry reported a decline of 9 per cent in sales in the April-June quarter. This was primarily led by a sharp decline in volumes of medium and heavy commercial vehicles, ie, trucks and buses.

The decline was largely due to the BS IV roll-out, deferment of purchase by fleet operators before GST, and supply disruptions owing to limited availability of components for BS-IV vehicles, pointed out Girish Wagh, Head - Commercial Vehicles, Tata Motors Ltd.

Looking up

However, things started looking up from August, as the temporary slowdown due to GST started receding.

Of all, the passenger vehicle segment managed to come out of the effects of all the three disruptions earlier than the other categories. While car sales are moving on a single digit growth curve, SUV sales are zooming on the back of new launches and growing preference of customers for compact SUVs.

Overall, SUV sales grew about 21 per cent at 8.03 lakh units in the January-November 2017 period, while car sales grew 6 per cent at 20 lakh units during this period.

The subject of electrification in automobiles continued to feature in all auto forums, with companies, including domestic vehicle makers, racing to highlight their EV plans through organic strategies, joint ventures and other modes.

“The Indian government has an ambitious aim of making the country run 100 per cent electric vehicles by 2030. We are actively working with the government,,” said Jerome Saigot, Managing Director, Nissan Motor India.

Japanese auto majors Toyota Motor Corporation and Suzuki Motor Corporation announced their plans to introduce electric vehicles in the Indian market by 2020.

Published on December 26, 2017
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