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

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