Economy

Auto sector looks to new govt to get things back on track

Murali Gopalan Mumbai | Updated on May 22, 2019 Published on May 22, 2019

NBFC crisis, low farm incomes have been hurting buying momentum

With the new government set to take charge soon, the auto sector will be hoping for quick intervention to boost its sagging fortunes.

Over the past few months, sales have been down across vehicle categories, with manufacturers generally flummoxed with the state of affairs. Urban demand has been slackening with finance not easily available from NBFCs while low farm incomes have pretty much derailed the buying momentum in rural India.

In the process, sales of cars, two-wheelers and trucks have been severely hit with no immediate signs of a recovery. “Things are terrible right now. We just hope the new government can help put things back in order,” said a top executive of a car company.

According to him, the most obvious solution is to boost customer sentiment by putting more money in their wallets. “One way to do this is to reduce the base GST level from the present 28 per cent so that vehicles become more affordable,” added the executive.

From the auto industry’s point of view, this is a pragmatic way forward since this will boost vehicle sales and make up for any loss of GST-linked revenue. When the global slowdown occurred in 2008-09, the UPA government had reduced excise duties to spur buying. The move helped India weather the storm and emerge less scathed compared to the US and Europe, which were literally battered.

Liquidity crunch

The other area that the new government will need to address on a war footing is the liquidity crunch which has severely hampered NBFC lending. The consequences can be felt especially in urban India, were sales of scooters and cars have virtually crashed.

Manufacturers are now cutting back production since they have had to deal with irate dealers complaining about being burdened with excessive stocks. It is now getting increasingly difficult for dealerships to remain viable in cities where rents are high and sales little to write home about.

In the process, some of them have had to shut shop and get rid of their workforce. The only way to get things back on track, say auto sector sources, is government intervention in terms of getting buyers back to the showrooms. This can only happen when market sentiment improves and they have more disposable income in their hands.

Concern over oil price

There are other areas of concern, such as global crude oil prices which could just spiral overnight if there is a fresh round of geopolitical tension. Oil industry officials have always maintained that crude is a political commodity that can see wild swings.

Paying more for petrol and diesel will only make things worse for the customer. Manufacturers, in turn, will be staring at a bleak future when they already have enough to worry about in terms of high input costs and the challenges of the Bharat Stage VI emissions deadline beginning April 2020.

It is quite clear that the slowdown is real and hurting all the stakeholders in the automotive ecosystem.

The biggest fear is that companies will start reducing their workforce if things do not get any better. This is where the government will need to step in and do its bit in getting the automotive growth story back on track. Things could get quite ugly otherwise.

Published on May 22, 2019

A letter from the Editor


Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!

Sincerely,

Support Quality Journalism
This article is closed for comments.
Please Email the Editor
You have read 1 out of 3 free articles for this week. For full access, please subscribe and get unlimited access to all sections.