Auto sector gets a breather as FM announces measures to boost demand

Resumption of car purchase by govt departments, increase in depreciation to 30% may boost sales

Facing its worst slowdown in two decades, the auto sector got a breather on Friday as Finance Minister Nirmala Sitharaman announced measures to boost demand. 

Executives said despite the weak economic scenario, the announcements would help send a positive signal to consumers just before the start of festive sales.  This is likely to translate into better-than-expected sales during the festive season. 

Measures announced to boost demand were a scrappage policy and allowing an additional 15 per cent depreciation on vehicles acquired till March 2020. In addition, BSIV vehicles purchased up to March 2020 will remain operational for the entire period of registration.

Pawan Goenka, managing director of Mahindra & Mahindra, said that there were three broad reasons for the slowdown — poor sentiment, low availability of finance, and transaction cost for vehicle purchase. He added that the announcement would go a long way in improving sentiment as it showed that the government was listening to the industry. 

Goenka further said that financing concerns were more or less taken care of, though not much was done for reducing transaction costs. However, he believes that several other measures will incentivise vehicle purchase and also remove unfounded fears such as BSIV registration.

Sitharaman also announced the removal of a ban on purchasing new vehicles by government departments. “To boost demand, government department vehicles will be changed with new ones immediately,” Sitharaman said.

“What is extremely critical for purchase is consumer sentiment. Today’s announcements will improve that, which hopefully will translate to better sales,” said R C Bhargava, chairman of Maruti Suzuki.

Bhargava said the minister’s clarification that there would be no ban on internal combustion engines will help remove confusion from buyers’ minds. 

The auto industry has been going through a prolonged slump. Society of Indian Automobile Manufacturers (Siam) figures suggest that vehicle wholesale across categories declined 12.35 per cent to 6.09 million units in the first quarter, against 6.94 million units in same period of last year. The Federation of Automobile Dealers Associations (FADA) has stated that nearly 200,000 jobs were lost in the last three months.

Industry executives had been sending SOS calls to the government and had warned that without any action, they would be forced to lay off people. 

Industry captains who have placed their bets on a good festive season said the capital infusion in banks would increase liquidity in the system and this would boost sales. 

“The promptness of this government’s response is reassuring because it’s putting liquidity into the market and easing the squeeze on small and medium enterprises. While there are indications of a global slowdown, the government has demonstrated its resolve to mitigate the impact of the same,” said Venu Srinivasan, chairman of TVS Motors.

With the slowdown, banks had tightened lending norms, which had led to a credit crunch forcing many auto dealers to shut shop. 

Dealers expect the announcements to improve the situation. “Easing of liquidity and building of confidence in the banking sector, which was already put to motion earlier, was followed up today. This will definitely uplift customer sentiment,” said Ashish Kale, president of dealers’ lobby FADA.