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Indian automobile industry turns anti-hero: From an angel to a fallen star

Auto makers assumed the slowdown will pass through, but it has been needlessly and endlessly stretching for over 12 months now.

Published: 25th July 2019 03:03 PM  |   Last Updated: 25th July 2019 04:29 PM   |  A+A-

Cars

For representational purposes (File | EPS)

Express News Service

HYDERABAD: From driving economic growth for years, the Indian auto industry has become an anti-hero. Sales are steadily crashing, and could lead to massive job losses, which the auto components' sector pegs at 10 lakh, besides being a drag on ancillary industries like steel and plastic.

Auto makers assumed the slowdown will pass through, but it has been needlessly and endlessly stretching for over 12 months now. Amid the din, if there's one factor that's holding up both global and desi auto makers, it's this: The market is far from saturation. Of the 125 crore population, nearly 70 crore are above 18 years, the legal age to drive. But as on FY16, India has a mere 3 crore registered cars and 17 crore two-wheelers. In other words, just about 18 in every 1,000 owns a car, much lower than the US that has 910 cars per 1,000, and China's 171 cars.

The ongoing slowdown isn't an isolated case though. Almost every other market has a similar story to tell. In January, China saw its auto sales plunge for the first time since 1992, while European markets including Germany are gripped by the slowdown forcing companies like Mercedes-Benz maker Daimler to turn in its first quarterly loss in 10 years. Worse, Aston Martin, the luxury marque favoured by James Bond and Japanese giant Nissan have even hinted job cuts due to falling sales that's bleeding them dry.

Back home, market leader Maruti Suzuki is contemplating cutting production, while Mahindra & Mahindra has already announced closure of up to 13 days this quarter. Much of the domestic slowdown is due to a fistful of factors. Changing emission norms, declining rural and urban demand, increasing input costs, reduced financing due to NBFC crisis, rising insurance costs and increasing pre-used car sales, availability of private cabs and the promise of electric vehicles. Truth be told, we have enough troubles of our own and a challenging external environment could make it only worse. 

While the sector tries to wriggle out of the knotty situation, for consumers, one thing is certain. Vehicle prices, which have been on the rise since last fiscal either due to heightened safety norms and compliance costs, will only go up.

For instance, crash test and pedestrian safety norms will start from October, while BS VI emission norms will kick in from next April, making vehicle acquisitions further dearer by 2-8 per cent, according to Dr Sowmya Kanti Ghosh, Chief Economic Advisor, SBI. Ghosh even fears that it's the entry-level cars and diesel vehicles that will be most-hit. Worse, credit availability could remain squeezed as NBFCs, one of the major auto loan financiers, are struggling to survive.  

The only bright spot is the pre-used market, that's expanding faster than forecasts led by the looming presence of organized players. In FY19, while new car sales stood at 3.6 million units, 4 million second hand cars were bought and sold. That gives some hope for the sector.

All said, given the market potential, auto makers are expected to crank out 10 million cars a year by 2030 from just under 3 million now. When that actually happens, the industry will return to being a twinkle in our eyes, motoring the economy.

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