The slowdown in the Indian auto sector would continue due to sluggish domestic economic growth and higher cost of ownership propelled by BS-VI emission norms, according to a recent study by Fitch Ratings. The agency in a different report said that global car sales are likely to decline by around 3.1 million units (m) in 2019 as a whole, a larger decline than in 2008.
Fitch said that the implementation of newer emission norms from April 1 next year will lead to around a 10-15 per cent increase in the cost of production, which is likely to exert pressure on demand and margins.
Moreover, with the demands for green energy rising, automakers are accelerating investments in the clean-energy vehicles, new technology and mobility trends, reveals the study. Due to this, the pressure on cash flow and profitability of the auto manufacturers in the country will increase significantly, points out the study.
On global slowdown in sales, Fitch Chief Economist Brian Coulton said, "The downturn in the global car market since the middle of 2018 has been a key force behind the slump in global manufacturing and the car sales picture is turning out a lot worse than we expected back in May."
Global passenger car sales fell to 80.6 m in 2018 from 81.8 m in 2017, the first annual decline since 2009. The turnaround after the rapid growth seen from 2011 to 2017 has been a significant factor behind the slowdown in world manufacturing and global GDP growth.
The main source of weaker-than-expected sales this year has been China. Year-to-date sales are down by 11 per cent compared to the first 10 months of 2018 and while seasonally adjusted monthly data have stabilised, there are few signs of a notable recovery.
For 2019 as a whole, sales are expected to fall by 2.1 m, to 21.6 m. Fitch added that weakness has been quite widespread. Both the US and western Europe are expected to see declines of nearly 2 per cent this year, taking the level of sales to 16.9 m and 14 m, respectively.