As Auto Industry Skids, Billionaire Pawan Munjal And Industry Leaders Seek Sops To Kickstart Sales

As India’s auto sales continue to be buffeted by weak consumer sentiment, tight liquidity, high insurance costs and vehicle price hikes, industry leaders including Hero Motocorp’s billionaire Chairman Pawan Munjal and Maruti Suzuki’s Chairman R. C. Bhargava met with Finance Minister Nirmala Sitharaman on Wednesday to call for measures to help kick-start sales and stem further job losses.

India’s largest car maker Maruti Suzuki had cut vehicle production by 25% in July compared to the same month last year. It was the sixth straight month of production cuts by Maruti.

Representatives from the top three auto trade bodies–the Society of Indian Automobile Manufacturers; the Automotive Component Manufacturers’ Association of India and the Federation of Automobile Dealers Associations–also met the minister.

They petitioned for the easing of liquidity as well as boosting of confidence of bankers and lenders in the non-banking finance sector so that consumers can get loans more freely and dealers can get access to improved funding. They have also asked for a reduction in the Goods & Services Tax rates from the current 28% to 18% at least on a temporary basis to stimulate sales as well as an incentive-based scrapping policy, which will encourage owners to get older vehicles off the roads.

“The government is sensitive to the industry and is willing to understand their concerns,” says Aditya Makharia, research analyst at HDFC Securities. “While companies are still working on one or two shifts as opposed to 2.5 and three shifts, there are some incremental positive signs. The monsoons have picked up and that will help the rural consumers.”

The auto industry, which employs 37 million people and contributes more than 7% to the Indian GDP and about 49% to the manufacturing GDP, has been caught in the throes of a sales slump triggering layoffs. Vehicle sales are down 12% in the quarter ended June 30 compared to the same quarter last year. Total vehicle registrations for the quarter fell 6% compared to the previous year. Registrations of commercial vehicles fell 14%, two wheelers by 6.4% and passenger vehicles by 1%.

The Federation of Automobile Dealers Associations noted that 286 dealerships were shut down in the last 18 months, and there were job losses to the tune of 235,000 people across dealerships.

“The automotive industry is facing an unprecedented slowdown,” ACMA president Ram Venkataramani said in a press statement in late July. “The vehicle sales in all segments have continued to plummet for the last several months. Considering the auto component industry grows on the back of the vehicle industry, a current 15% to 20% cut in vehicle production has led to a crisis like situation in the auto component sector. If the trend continues, an estimated ten-lakh [one million] people could be laid-off.”

But the trade body representatives are hopeful of a quick revival.

“The government has shown genuine and deep concern at the state of the auto industry,” says FADA chief Ashish Kale. “We had the RBI rate cut that happened yesterday. We hope to see growth revival–aided by the government–before we head into the festive season.”

Analysts say that a number of negative factors have come together to cause a slowdown: Higher insurance costs; delayed monsoons; repeated price hikes due to safety regulations mandated by the government and the liquidity crisis in the banking and non-banking sectors.

Moreover, the constant buzz on electric vehicles has caused consumers to postpone buying decisions. Auto industry leaders have asked the government to take a more cautious approach toward electric vehicles. The industry has already spent more than $10 billion preparing for the BS VI emission standards which become effective from April 2020.

However, the government’s recent comments about electric vehicles has given consumers the perception that they can jump to electric vehicles instead of going for the BS VI-complaint vehicles that manufacturers are ready to churn out. The reality is that India’s auto sector will first need to go through a few more years of BS VI-ready vehicles before it can move to electric vehicles.

The pivot to electric vehicles is much harder because there is currently no infrastructure in place for electric vehicles in the country. Since this caused an uproar in the industry, the finance minister had to clarify that while the industry will eventually shift to electric vehicles there is no designated timetable for the transition.

The industry is also a few years away from mass-production of passenger electric vehicles. In his latest speech to shareholders in June, Hero MotoCorp’s Munjal urged the government to adopt a more “cautious, clear and realistic road map” towards the adoption of electric vehicles.

“The scale and timing of the adoption need prudent deliberations and we will gladly support all stakeholders in this process,” he said.