17 Oct 2019
Posted in Automotive
Decline in lending and lack of clarity around BS-VI key reasons for automotive slowdown in India, says GlobalData
The Indian automotive sector is facing an unprecedented slowdown for the last several months with sales of vehicles across all segments experiencing prolonged negative growth,
Animesh Kumar, Director of Automotive at GlobalData, offers his view on in what way the current slowdown is different from the previous ones and how long will it last:
“The slowdown is not new and the industry has suffered similar slump in the past. However, unlike previous occasions when the market declined due to global financial and economic crises, currently the reasons are predominantly internal. The collapse of Infrastructure Leasing & Financial Services Limited (IL&FS) has dried up funding and escalated borrowing costs. Subsequently, lending by non-banking finance companies (NBFCs) has declined and dealt a blow to all stakeholders across the automotive value chain – especially the automotive dealers. Close to 300 automotive dealerships have shut shop recently.
“Banks have also become cautious and are reducing exposure to the automotive industry, ultimately impacting the auto component suppliers and customers. There has been an increase in the instances of bookings not converting into sales as customers are increasingly failing to secure car loan.
“According to the Society of Indian Automobile Manufacturers (SIAM), the year-on-year sales across segments have declined significantly during April-September 2019. All major original equipment manufacturers (OEMs) in the passenger vehicle (PV) segment, including Maruti Suzuki, Hyundai Motor India, Mahindra & Mahindra, Tata Motors, Honda and Toyota, reported drop in sales. Commercial vehicles (CV), three-wheelers and two-wheelers have also struggled.
“As a result, there has been a knock-on effect on vehicle production. OEMs are cutting down resources, closing dealerships and temporarily shutting plants. Subsequently, exports of CVs and three-wheelers are also declining.
“Another significant reason is the lack of clarity regarding Bharat Stage VI (BS-VI) emission norms. BS-VI will come into effect in early 2020 and compel all OEMs to upgrade their engines. This is leading to different reactions from customers. Some are waiting for the period immediately before the implementation of BS-VI as OEMs are likely to come up with attractive promotions/discounts to get rid of old inventory. Some customers are worried whether they would be able to sell off the vehicle after few years and the impact on resale value. Lack of clarity regarding the future of diesel vehicles in BS-VI era is also impacting vehicle sales.
“Growth in the used car market, increase in the uptake of shared mobility (ride-hailing and car-sharing) and lack of clarity regarding electrification are the other factors affecting the country’s automotive industry.
“However, the government is acknowledging the challenges being encountered by the industry and extending support by putting on hold the earlier announced plans to hike the vehicle registration fee. The coming months are likely to be better because of the festive season, good monsoons and discounts/promotions towards the end of the year. However, a revival is expected only towards the end of 2020 or at the beginning of 2021, when the market ‘settles down’ post implementation of BS-VI emission norms. It is going to require a concentrated effort from all stakeholders – including the government – to revive the market.”