The automotive sales is declining since last year and the month of July has recorded a steep decline of 31% which is the worst fall since 2000 (which witnessed a decline of 35%). For the first time in a few years, Maruti Suzuki has sold less than 1 lakh units of cars.
Not just cars but other segments like motorcycles, tractors, commercial vehicles are facing the stress.
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Table of Contents
The industry
Automotive industry is one of the most important industry in India as it contributes to about 7.5% of India’s GDP. It employees over 25 lakh people which may be direct or indirect.
India is the world’s largest tractor manufacturer, 2nd largest two wheeler manufacturer and sixth largest car manufacturer.
A decline of sales in this industry directly affects the country’s GDP.
Check out the Source for more information on automotive sales report
The BS 6 impact
We all are aware of the upcoming BS 6 norms which comes into effect from 1 april 2020 and a company cannot sell BS 4 complaint car from that date and any vehicle that is not sold will be sent to scrap.
This creates tension among the manufacturers as they lose a lot of money if they cannot clear the stock.
People losing jobs
Due to low sales and losses, thousands of people working in this industry had lost their jobs, more than 10 lakh people have fear of losing their jobs. Companies have reduced or stopped recruiting freshers through both campus and off campus drives. Production is stopped every now and then to compensate the sale decline.
This decline didn’t just affect the OEMs but many other people who are directly or indirectly dependent on this field. Many showrooms were shut down taking away lots of jobs.
This decline didn’t just affect the OEMs but many other people who are directly or indirectly dependent on this field. Many showrooms were shut down taking away lots of jobs.
Causes
The decline in sales is not due to a single reason or two
Rural areas
More than 60% of the sales of automobiles is from the rural areas. Since there is less cash flow among people, the sales declined in the rural areas.
Since more than 80% of the people in rural areas are engaged in agriculture, crop failure and other problems of the farmers may be the reason for the decline.
This clearly explains the importance of farmers for development of the country.
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Increased prices
Price of registration, insurance, loan processing fee, tax, etc have increased thereby increasing the overall price of the vehicle.
Norms like BS 6 and BNVSAP have increased the price of a vehicle
Rainfall
This is one of the important factor for the decline.
Many parts of the country receives heavy rainfall resulting in floods. Kerala and Mumbai floods impart a fear among buyers and they tend to postpone their purchase.
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Used car market
People do consider the used car market before buying a car and if they get a good deal, they tend to buy a used car than a brand new one.
The sale of used cars are also declining though.
Motor vehicle amendment bill 2019
This is a very good initiative by the government to improve traffic discipline. But the timing is a huge flaw.
If you are buying a new car but when you see the news about people paying thousands even lakhs of money for traffic violation, will you buy a car. People are very confused, terrified and angry at the same time because of this act.
There are cases where people are fined as they did not wear a helmet in a car! are you kidding me?
This will soon have a terrible impact in the sales.
BS 6 and EVs
There are a group of buyers who are waiting for the BS 6 norms to kick in and have delayed their purchase.
Some people are considering to EVs and even the government is trying to push the EV sales.
Fuel prices
Steep increase in fuel prices increased the running cost of a vehicle and this demotivated buyers.
US China trade war
This led to a decline of sales in the industry globally and has reduced the vehicle export rates.
Remedy
What the industry demands
The manufacturers demand the government to reduce the GST collected on cars from 28% to 18% in order to boost sales. Some experts predict that this might compensate for the money lost on offering discounts but it might take around 2 years for the industry to stabilize.
The government’s initiative
The government came up with some plans and orders to improve the conditions this includes,
- Postponing of the scrappage policy
- Measures to provide loans easily (by releasing funds from RBI)
- Swapping of old government cars with a brand new one
- Postponing of the hike for registration fee
Also the government must remember a couple of things regarding motor vehicle amendment bill 2019.
- This would have a huge impact in sales decline
- The hike in fine is enormous
Therefore, keeping these things in mind the government should reduce the fine rates. They can gradually increase the rates after this industry gains pace.
This might help to improve the sales mainly during the festive season.
Honest advise
If you are planning to buy a new car, this is the right time to buy as the companies are offering huge discounts on their products mainly to reduce the pile of stock.
Update
The sales in September is also poor with a decline percent of around 25%. But compared to august, sales have improved a bit due to discounts for the festive season. But the major car makers like Ashok leyland and Tata have faced a steep decline of over 50% month on month this September.
One good thing though is the sales of SUVs has improved and that is one of the main reason for Hyundai doing better in the sales chart over the others. Venue has changed the game of the company shearing off its rivals like the brezza. Competitive pricing and first in class features are the notable boon for the sales.