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The kiss of death for India's automobile industry

By TN Ashok. Dated: 8/23/2019 10:53:10 PM

More than thousands of dealers including over 3,000 in Maharashtra are facing the heat as sales are dropping due to consumer resistance, pile up of inventories, no price cuts by auto makers, and big jump in registration fees proposed by the central government led by the BJP led NDA.

India's multi-billion automobile industry dominated by the American, Japanese, German, and other European and indigenous car makers and heavy vehicles is virtually facing the " Kiss of Death" following the worst ever sales in first quarter of FY 2019-20 in in the last near 20 years.
More than thousands of dealers including over 3,000 in Maharashtra are facing the heat as sales are dropping due to consumer resistance, pile up of inventories, no price cuts by auto makers, and big jump in registration fees proposed by the central government led by the BJP led NDA. Only the upcoming festival season like Ganapathy festival and Diwali can do some damage control for the automakers if they decide to drop prices and get rid of the inventory pileup and reopen factories that have temporarily closed down,
India's passenger vehicle industry suffered its worst sales performance in nearly 19 years in July as a slowing economy, higher ownership costs and floods in some states deterred buyers. Sales fell 31% to 200,790 vehicles last month from 290,931 units a year earlier, showed data released on Tuesday by the Society of Indian Automobile Manufacturers (Siam). It was the worst sales performance since a 35% decline in December 2000, reports circulated by the association to the media widely indicagte.
or the ninth straight drop in monthly passenger vehicle sales, it has fallen in 12 of the 13 months since July 2018, underscoring the sharp slowdown in demand in the world's fourth-largest automobile market. Passenger car sales plunged 36% to 122,956 units, while utility vehicles dropped a 15% drop to 67,070 units. Vans suffered a 46% decline to 10,804 units. Siam, the representative body of the industry, normally releases only figures of wholesales, or factory dispatches of automobiles, and not retail sales.
Sales of utility vehicles slid despite introduction of new models by Mahindra and Mahindra Ltd's XUV300, Hyundai Motor India Ltd's Venue and MG Motor India Ltd's Hector models. The new models have seen robust demand despite a weakness in the overall market, a consolation in the depressing scenario.
Maruti Suzuki India Ltd shrank wholesales of its Vitara Brezza compact sport utility vehicle following weak demand, competition and its recently announced plans to phase out diesel vehicles from next April.
Hyundai and Mahindra and Mahindra reported 10% and 15% decline in sales, respectively in July.
Severe floods in key states such as Maharashtra, Kerala and Karnataka before the onset of Onam and Ganesh Chaturthi are also weakening the demand for the automobile industry.
In the commercial vehicles segment , the economic slowdown has virtually collided with an increase in large vehicles such as trucks and lorries freight carrying capacity. This has led to a sharp fall in sales as fleet owners could carry more freight on their existing trucks. Lower demand from agriculture and other sectors also contributed to the weak market as fleet owners witnessed a drop in rentals.
Sales of medium and heavy commercial vehicles fell 37% in July to 17,722 units, while light commercial vehicles posted a 19% decline to 39,144 units. Total sales of commercial vehicles fell 26% to 56,866 units, industry reports say.
Both urban and rural markets have shown a very sluggish demand even as third-party insurance premium continued to adversely impact sales of motorcycles and scooters. In the two-wheeler segment, total dispatches fell by 17% in July to 1.51 million units. Sales of motorcycles dropped 19% to 933,996 units, while scooter sales fell 12% to 526,504 units, reports say.
The crisis in the automobile industry is quite severer because leading automakers have announced shutdowns of their factories to adjust inventory threatening jobs and layoffs of workers in the industry. Tata Motors Ltd, India's largest commercial vehicle maker, closed its Jamshedpur and Pune plants for up to 12 days. Ashok Leyland Ltd, the third-largest commercial vehicle maker by volume, closed its Pantnagar facility for nine days last month due to weak demand.
Maruti cut production for the sixth straight month in July to control dealership stocks of piled up inventories. "There is no point pushing stocks in the dealerships when there is no demand in the market. We will take a call regarding production after taking a look at the market situation. We have an inventory of a little over a month with our dealers since retail sales are under pressure," R.S. Kalsi, senior executive director (sales and marketing) at Maruti Suzuki, reportedly told analysts in a concall.
Car and two-wheeler makers generally tend to start adding to dealer inventory from August in anticipation of higher sales during the festival season, which starts with Onam in August and ends with Diwali in November.
Vishnu Mathur, director general of Siam, said the decline can be arrested only if the automobile industry receives a financial package from the government. The flood situation in states such as Maharashtra will further impact consumer sentiment, he is quoted by the media as saying.
"Thankfully, this time the festive season will arrive a bit late. So, if some help comes from the government, then we can expect demand to pick up during the festive season," Mathur said adding.
What happened in Q1 2019?
Says Manzi: The first quarter began the year with a sluggish start to new vehicle sales because of several weather-related events, the federal government shutdown and increasing competition in the used vehicle market. Transaction prices on both cars and light trucks continued to rise. According to the latest NADA Average Dealership Financial Profile Series from January 2019, the average new vehicle transaction price was $36,410, up 3.3 per cent compared to this time last year. Transaction prices on used vehicles sold by franchised dealers have also risen.
The reason for quoting Manzi in this article is to get a better understanding of the global auto market of which India is also a part, as one of the fastest growing hubs for the small car market in the world. India is one of the biggest exporters of small cars to the world particularly, Eastern Europe, South Africa and South America.Lets see if the government puts on hold the enhancement of registration fees for light commercial vehicles as also heavy vehicles. If the transport ministry comes up with any incentive scheme to reopen shutdown factories, take back laid off workers and promote consumer awareness to go out and buy and bale out the industry.
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