Economic slowdown hits auto sector hard, mega job losses reported

Sales shrink for the ninth straight month to a near two-decade low; 2.15 lakh could have lost employment across India within the past few months alone; crisis deepening, say analysts

Published: 14th August 2019 04:29 AM  |   Last Updated: 14th August 2019 04:29 AM   |  A+A-

For representational purpose only.

Express News Service

NEW DELHI/COIMBATORE: The automobile sector is showing no signs of recovery with sales shrinking for the ninth straight month to a nearly two-decade low. Overall domestic sales declined 18.71 per cent in July compared to last year. The Society of Indian Automobile Manufacturers (SIAM) data show only 18,25,148 units were sold in July 2019, while 22,45,223 were sold in July 2018.

Thousands of people are being laid off by car-makers, said SIAM on Tuesday. “Almost 15,000 jobs, mostly temporary and casual, have already been lost in the auto manufacturing sector over the last two-three months,” said SIAM director-general Vishnu Mathur. The job cuts are estimated to be much higher at the dealership level. 

The Federation of Automobile Dealers’ Association estimates over 2 lakh jobs could have vanished in the same period. In Coimbatore alone, industry insiders say, close to 26,500 jobs with car dealerships and spare parts manufacturing units have been lost in the past 6 months. “About 25,000 jobs in spare parts making units, and 1,500 jobs with dealerships and service centres have vanished,” said an industrialist based in Coimbatore.   

SIAM data show that the demand for passenger vehicles contracted by a whopping 31 per cent in July this year compared to the same month last year. Commercial vehicle and two-wheeler sales fell 25.71 per cent and 16.82 per cent, respectively. Overall production fell 11 per cent, with output of passenger vehicles declining 16.5 per cent, commercial vehicles by 26.4 per cent and two-wheelers by 9.5 per cent. 

High unemployment rate and economic slowdown have held back middle-class buyers from going in for big purchases such as cars and houses. “Overall household savings have fallen,” says Kumar Kandaswami, partner at Deloitte. “This indicates people are dipping into their savings more. Unless disposable incomes are given a boost, there will be little improvement in big-ticket purchases.”

The slowdown in demand has been exacerbated by the NBFC crisis last year, said analysts. The crisis narrowed credit access to both fleet operators and retail consumers. “Buyers have been postponing buying with sentiments becoming negative,” said Ashwin Patil, Senior Research Analyst, LKP Securities.

Dealers say that many of them are dependent on banks and finance corporations for funds. “In the recent days, banks have started pressuring us to return outstanding loan amounts immediately, making it difficult to run the business,” says a dealer based in Coimbatore.

“So far, four car dealers in Coimbatore have shut shop; across the State, 15 dealers have closed down their units.” The dealer added that across India, 300 dealerships had closed down in the last couple of months due to the crisis. 

Prabhu, who works as sales executive with the used car division of a Coimbatore-based dealer says dealers who have stocked up cars worth crores of rupees are getting desperate. “We have never given offers on Maruti’s Brezza. Now, due to this crisis, Rs 45,000 cash offer is being given on this model.”

“Dealerships do not want to keep new model cars idle in the showrooms. Some of them have stocked cars worth hundreds of crores, and their money is locked in. To overcome the financial crisis, they are announcing various offers. Some workers who lost jobs have joined other units, but we do not know how long these showrooms can survive as the situation seems to be getting worse,” says Prabhu.  
Festive season outlook bleak

Going forward, while the advent of the festive season is expected to provide a boost to demand over the next few months, the uptick is likely to be muted, according to market analysts.

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