An unending bumpy ride for automakers
The auto industry seems to be in a free fall. In the bellwether segment of passenger vehicles (PVs), last month’s sales were just over 2 lakh cars, a fall of 31% from July of last year—the worst performance for automakers in the last 15 years. It has been a continuous decline for the ninth consecutive month. Even the launch of new models such as the Mahindra XUV300 or the Hyundai ‘Venue’ has not succeeded in reversing the slide. What is most ominous is the falling sales of two-wheelers and commercial vehicles, which are not usually impacted by recessionary trends. July figures indicate sales of motorcycles dropped 19% to 9.34 lakh units, while scooter sales fell 12% to 5.27 lakh units, compared to a year ago.
Auto manufacturers are hoping the coming festive season will bring cheer, but the panic in the industry is palpable. A little over a week ago a high-power delegation led by R C Bhargava of Maruti Suzuki met Finance Minister Nirmala Sitharaman. The booster package they demanded was lowering GST from the current 18-26% level, increasing liquidity and cheaper access to credit to crank up sales.
There is nothing concrete on offer from the government yet. Typically, demands for financial concessions come with the threat of job losses. The picture is grim: a looming loss of some 10 lakh jobs in auto parts manufacturing, while dealerships are believed to have shed 2 lakh jobs so far. However, the government will not find it easy to give concessions on GST. Firstly, it will trigger a stampede among other industries for similar concessions; and second, the government, not able to reach its GST collection target, can ill afford to be magnanimous. Socially, cars are a luxury segment, and concessions based on the math of job losses cannot be justified.
The solution is a more holistic one: that of recharging the economy with more central investment, to create more jobs and higher demand. Till then, automakers will probably have to continue their bumpy ride.