Major slowdown

10/09/2019

Possibly seeing its worst slowdown in decades, the Indian automotive industry has been badgered, bruised and continues to suffer great losses. What once was a phenomenal growth story and an example for other manufacturing industries, if you discount 2008-09, now looks like a distant memory. Figures released by the Society of Indian Automobile Manufacturers have revealed that passenger vehicle sales in the month of July plummeted a whopping 31 per cent to 200,790 vehicles compared to a year earlier. This marks a ninth straight month of decline, and the steepest one in nearly two decades. To further reiterate the damage this month, even Maruti (MSIL), the market leader and growth indicator for decades, has suffered a 36.7 per cent sale loss compared to the same month in 2018. Maruti struggled to even reach 1 lakh units this month, with sales totalling 96,478 units. This massive drop in sales has happened despite the introduction of recent models like the Mahindra's XUV300, the Hyundai Venue and the MG Hector. All products pegged to be game changers in their own right. Thus, this has caused a chain reaction across the industry ranging from manufacturers offering a number of discounts and offers and new launches to help instigate demand. Due to less demand, manufacturers are also having to cut down on production, sometimes even shutting their factories down to adjust inventory. This sharp decline in the last year or so has even lead to dealerships slowly being shut down due to rising inventory management costs rendering these dealership outlets unviable. In turn, this is also leading to massive lay-offs by the auto-makers and auto-dealers across the supply chain.
Many automobile dealerships in Jammu admitted that there is a major slowdown in automobile industry since last month which is evident from their sales, which have dipped by 50-60 percent. However, they attributed this crisis in automobile industry of the State more to 9 percent Road Tax announced by the State Government and restrictions in the State than higher GST rate.In last one month, the sales dropped by 70-80%in Jammu and Kashmir.
Due to the slowdown in economic growth in the country, banks all over the country have had to make changes to their policies as a response. Some of them, including NBFC's as a result of bad loans and weak retail sales have decided to enforce stricter restrictions. These restrictions include giving out loans only to people with a high credit rating. This has majorly affected auto dealers and customers especially from tier 2 and tier 3 cities. A combination of other factors such as higher insurance costs and tax increases have contributed to the drop and have resulted in a major liquidity crunch. Despite the central bank having a dovish stance on loan rates, automotive lending continues to be stringent with much higher rates. Automakers like Maruti, Honda, Renault and Nissan have already started offering huge discounts and special offers in order to clean out their BS4 inventory before April 2020. However, this is leading to customers waiting for further discounts, which has further delayed purchase decisions. This in turn is not only affecting sales greatly, but also limiting production for automakers due to a surplus of inventory but no sales. We can tell you that contrary to popular belief, now might be the best time to buy BS4 cars.

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