Lower prices may push auto demand
The only change the stricken auto industry seems to be seeing is that the stream of bad news is now being relegated to the inside pages of newspapers. This is despite August recording the worst performance since the Society of Indian Automobile Manufacturers (SIAM) began recording vehicle sales data in 1997-98, over two decades ago.
Bad news fatigue has obviously set in with the 10th straight month of falling auto sales. Sales across all categories slumped by over 23% in August to 18.21 lakh units compared to 23.82 lakh a year ago. Passenger vehicles (PVs), with a fall of 31.7%, recorded the segment’s worst ever fall. Two-wheeler sales, which is a reflection of the rural economy, also declined in August by a record 22.24% to 15.14 lakh units. Sales of commercial vehicles—a barometer of the economy’s performance—plummeted 39% to less than 52,000 units.
The automobile sector cannot be underestimated. It contributes about half the manufacturing gross domestic product (GDP) and employs directly or indirectly a workforce of nearly 40 million. In this context it is indeed worrisome that the industry is facing huge job losses across manufacturing plants, components production units and dealerships. More bad news is in the pipeline with Ashok Leyland, the first of the commercial vehicle manufacturers, announcing compulsory no-work days across its plants.
There are some significant takeaways in the recent poor auto sale figures. First, the hopes that with the onset of the festival season, consumers would loosen their purse strings have been belied. Even entry-level cars priced below Rs 6 lakh are not selling, recording a 56% fall in sales over the last five months. Second the government’s stimulus—that include rolling back the tax surcharge on overseas investors and the Rs 70,000 crore injection for state-run banks to improve liquidity—does not seem to be working. Since the government seems to be in no mood to reduce the outrageously high GST of 28% on cars, perhaps the manufacturers should consider dropping the tab of their over-priced models to boost demand.