Blockbusters delivered by two union ministers created quite a stir last week. First, Finance Minister Nirmala Sitharaman on Tuesday said one of the principal reasons for the slowdown was that millennials had undergone a mind-set change; and they prefer using Ola and Uber cabs rather than buying cars.
Not to be outdone, Minister of Railways Piyush Goyal, in a strong rebuttal to those running down the government’s economic performance, said: “Don’t get into calculations about the economy.
Don’t get into math. Math never helped Einstein discover Gravity”. Goyal’s was a complete gaffe. He needs to improve his understanding of both math and general knowledge, and not mix up Einstein with Newton. But while Goyal can be forgiven, Sitharaman has to be tackled for two reasons. First, she has made a statement as the FM displaying poor economic sense. Second, she has tried to back her claim quoting consumer studies.
Gen Y in the dock
The author of the theory that the app-based cab services are hitting car sales is not the FM but Anand Mahindra, chairman of Mahindra Group. In an interview in 2015 with a business daily, he said: “The age of access being offered by taxi-hailing apps like Uber and Ola is the biggest potential threat to auto industry.”But then math proved him wrong! Passenger vehicle (PV)sales in India crossed the three million milestone for the first time in 2016-17, with the segment witnessing a growth of 9.23 per cent.In 2017-18, PV sales grew by 7.9 per cent with total sales at 3.29 million units.
The theory was first popularized by the US media in 2013. Based on falling number of young drivers and slowing trend of car ownership, ‘The-End-of-Car-Culture’ theme hooked on to millennials’ supposed preference for renting and sharing over owning. But since 2015, data actually proved the US millennials-and-cars ratio had not been influenced by changing tastes as much as by the economic necessity thrust on them by the slowdown.
In a paper published in 2017, Nicholas Klein from Columbia University and Michael Smart from Rutgers wrote only millennials in dire financial straits owned fewer cars than members of previous generations; those who achieved financial independence owned more cars than expected based on their incomes and wealth.
The real reasons
The other reason that the FM offered for the car sales decline over the last 10 months was the coming Bharat Stage VI stringent norms from April 2020. This has truth in it since the more sophisticated engines will make cars more expensive and the older BS-IV vehicles redundant. In fact, prices of cars have risen over the last 9-10 months by 15 per cent due to mandatory additions like airbags, reverse sensors and implementation of crash resistance standards.
Besides capital costs, maintaining a car has become more expensive. Despite the international weakening of petrol prices, local and central taxes have jacked up fuel prices by over 15 per cent since August 2015. There are other reasons too for the poor auto sales. Ever since the demonetization, India has faced a slowdown in economic activity, translating into weaker manufacturing activity,and lakhs of jobs being lost. With no end in sight to the downturn, consumers have become cautious, avoiding luxury spending.
Other deterrents have reduced the utility quotient of passenger vehicles. Poor infrastructure of roads has made driving not a pleasure but a punishment; and paying GST at 28 per cent feels like paying penalty for an unknown crime. When the FM spoke about reasons for the crisis, she was possibly referring to Deloitte’s 2019 Global Automotive Consumer Study. The survey claims Gen Y and younger consumers compared to the older generation, are more likely to understand the idea of shared mobility and public transportation and question whether vehicle ownership is a necessity.
We wish this were true. In India, aspirations are still strong about owning a car. It is the purse that is found wanting. The question of enlarging the ‘green’ footprint by using public transport only exists in the analyst’s imagination. Do people really have the option of cheap and easily accessible public transport? Against an estimated requirement of 30 lakh buses to ferry passengers, there are only 2.8 lakh buses run either by state transport undertakings or under stage carriage permits. Transport Minister Nitin Gadkari conceded that while China has about six buses for 1,000 people, India has only four buses per 10,000 people.
Origin of the auto millennials theory
The specious millennials theory was first popularized by the US media in 2013. Based on falling number of young drivers and slowing trend of car ownership, ‘The-End-of-Car-Culture’ theme hooked on to millennials’ supposed preference for renting and sharing over owning.