You are here: Home » Companies » News
Business Standard

Auto industry seeks govt intervention as PV sales skid to decade low

The passenger segment is the most valuable for the industry and a slowdown indicates Indian consumers are holding back purchases

Arindam Majumder  |  New Delhi 

car sales

Vehicle sales in India — a key indicator of the economy — continued to slump with a decline of 8.62 per cent in May.

Sales have been going down since July last year but what is worrying the industry is a historic drop in sales of passenger vehicles by 20.55 per cent in May.

The passenger segment is the most valuable for the industry and a slowdown indicates Indian consumers are holding back purchases.

Sales of Maruti Suzuki, India’s largest carmaker, declined 22 per cent — the highest since August 2012 — in May.

“For some unknown reasons, customers put off purchases during the election, which has hit retail demand. I do not expect the demand to pick up in the first quarter,” said R C Bhargava, chairman of Maruti Suzuki.

Industry executives are calling the decline unprecedented and have asked for government intervention in the matter. “We were expecting that there would be recovery in sales after the election but this kind of decline is unprecedented, indicating a cyclical slowdown,” said Vishnu Mathur, director general, Society of Indian Automobile Manufacturers (SIAM).

The decline has been the sharpest in the history of the segment.

Within this segment, declined 26.03 per cent to 147,546 units, whereas utility vehicles (UVs) and vans witnessed a fall of 5.64 per cent and 27 per cent to 77,453 units and 14,348 units respectively.

According to Mathur, the industry has asked for incentives from the government. Among the primary demands are reduction in the goods and services tax (GST) rate on vehicles to 18 per cent from the current 28 per cent, reduction in the corporate tax rate to 25 per cent, and weighted deduction for research and development to be reinstated at 200 per cent till the corporate tax rate is reduced.

Auto industry seeks govt intervention as passenger vehicle sales fall 20.5%

According to the data available with SIAM, this is the 11th consecutive month since July 2018 when car sales have shown a decline. Overall, the sold 2,086,358 units in May. In the same month last year, it sold 2,283,262 units.

The slowdown has forced production cuts by top automakers to streamline their inventories, which had reached a record level, leading to panic among distributors. Seven of the top 10 makers, including Maruti Suzuki, Tata Motors and Mahindra & Mahindra, have announced plant shutdowns between May and June.

While some have completed the process, for the others it is either going on or scheduled to happen.

According to the data available with the Federation of Automobile Dealers Association (FADA), inventories now stand at 50-60 days, while those of two-wheelers are even higher at 80-90 days. For commercial vehicles, inventory levels range between 45 and 50 days. “We will be advocating an inventory of 21 days, almost half of the current level of 40-45 days. This is due to the overall decline in volumes, weak consumer sentiment, paucity of working capital, and an uncertain environment,” said Ashish Kale, president of the Federation of Automobile Dealers Associations, a lobby group of auto dealers.

Industry executives said while such a shutdown would not immediately result in job losses, it was having an impact on suppliers. “Original equipment manufacturers (OEMs) will not immediately feel the pinch but it severely impacts other suppliers in the value chain, many of whom would be unable to bear this shock. In the last 10 years, we have not seen anything like this, when all the segments are down,” SIAM Deputy Director General Sugato Sen said.

That the demand is subdued in urban areas is evident from a sharp drop in sales of scooters by 17.67 per cent. Similarly, in a sign of slowdown in rural areas, where motorcycles are popular, motorcycle sales declined by 8.36 per cent.

“The demand in the rural economy is not looking great and it has reflected in the sales of motorcycles, which were down by 8.36 per cent. We cannot expect a sudden recovery in sales any time soon,” added Mathur.

First Published: Tue, June 11 2019. 22:07 IST
RECOMMENDED FOR YOU