Doldrums : Indian Automobile Sector

A two month analysis of the Indian passenger vehicles automobile sector, covering June and July 2019.

June, 2019

Automobile industry continues to be in distress, with demand declining in both rural and urban segments. Besides being in stride with the broader picture of slowing growth in the Indian economy as a whole, the automobile industry has been especially in the doldrums due to stricter vehicle regulations regarding safety and engine performance coming into effect. These have lead to a price rise, and consequently, lesser sales. Except Mahindra & Mahindra, all other major passenger vehicle OEMs in India registered negative sales trends, as shown below:

Overall, passenger vehicle sales in India decreased 17.54% in June 2019 compared to the June 2018. The trend of reduced demand was further strengthened in June due to the liquidity crunch and expectation of incentives from the budget to be presented on July 5. Owing to this, a pileup of inventory has happened, with the number of unsold cars at dealerships soaring to about 500,000. To tackle this, several OEMs have decided to go for an inventory correction by suspending manufacturing for various periods of time during the month. As a result, production has also decreased by 12.98% during this period. Commercial vehicles segment has also been hit pretty bad, and faces a reduction in numbers of over 48%.

July 2018

With the budget, despite giving strong impetus to the electric vehicle market, not providing no major sop to the struggling automobile industry, sales continued to plunge in July. On the contrary, the extra 1 rupee cess on fuel prices could drive demand further down.  The already weak demand was further weakened by a delayed monsoon and floods in key states of Kerala, Karnataka and Maharashtra. With sales in July for the industry being at a 19 year low (since December 2000), more and more OEMs have been shutting down factories for several days in order to stop pushing stock onto dealership who couldn’t sell them. All major passenger vehicle manufacturers in India faced negative growth in July despite the launch of new products.

Overall, vehicle sales in July fell by over 30% and production fell by 11%. There needs to be a major boost to the demand to keep business spirits up for the domestic vehicle manufacturer. Employing over 3.7crore people, the automobile industry is a major driver of growth (accounting for almost half the manufacturing GDP) and a slowdown in this industry is a sign of worry. The Automotive Component Manufacturers Association of India(ACMA) has warned that almost 10 lakh jobs could be in peril of being lost if the current downturn in market conditions continues for more quarters.

Post-Script

Major passenger vehicle OEMs stock have all fallen, some as much as by over 50% in a single year. With the crisis worsening, around 15,000 jobs have already been lost in the automobile manufacturing sector and over 300 dealerships have had to close down, leading to a further loss of over 2 lakh jobs. The industry is urging the government to come up with a revival package to help it to stabilize and grow once again.