This report first appeared in the September 2019 issue of PowerTALK.

The bad times in the India automobile market started with the slowdown in Q4 2018, triggered by the NBFC (Non-Banking Financial Companies) crisis. Since then it has been 10 consecutive months of hard times for almost all automobile segments. All the segments in the country, be it passenger cars or commercial vehicles, have registered a decline.

Weak market sentiments and an overall economic slowdown have added to existing reasons for low sales.

The two-wheeler industry has witnessed a 10% decline through August in 2019 owing to increased vehicle costs caused by new safety mandates and insurance premiums. The rural market, which makes up around 60% of total sales, has been affected by the worst economic crisis ever seen in rural areas.

The Passenger vehicle segment saw a 9% decline through August in 2019 because of the reduced buying power caused by the NBFC crisis. People living in the metro areas also are reducing their purchases due to the increased availability of shared mobility.

After blockbuster CV growth in 2017 and 2018, largely driven by demand for tipper trucks in new infrastructure spending, mining projects and fleet replacements, the party ended in Q4 2018. At that time, the industry experienced a sharp decline between 2018 and 2019 mainly due to the liquidity crunch, revised axel norms, slowdown in manufacturing and infrastructure spending, and uncertainties due to the general elections.

The CV market is likely to continue to see soft demand as customers defer purchases because of under-utilization of trucks caused by falling freight rates.

The slowing of the economy is hurting overall customer sentiments and impacting demand for new vehicles. The MHCV segment dipped 19% in 2019 through August.

To address this situation, several reforms and steps are being taken by OEMs and the Government. Some of them are listed below.

OEMs. The OEMs have

  • Started offering hefty discounts and additional benefits to boost sales.
  • Increased their advertising budgets by 10%-12% over 2018 for the festive season.
  • Organized special events like ‘gramin mahotsavs’ (village festivals)
  • Offered attractive financing schemes and exchange deals to draw in consumers in rural areas, where good rains since July have raised hopes of a bumper harvest and faster recovery in the economy.

Government. The government is planning to cut the GST on the auto segment by 10% in addition to the reduction in interest rates on loans. It has pumped in Rs. 70,000 crores in NBFCs, and it has introduced fiscal incentives for old vehicles.

Considering these positive steps against the existing negative pressures, demand should pick up in this festive season and should continue for several quarters, considering the pre-buy. Q4 2019 should see Y-O-Y growth due to the low base of Q4 2018.   PSR