Arohi Sharma

Sohail Parvez
Prakhar
Mehrotra

[AUTOMOBILE INDUSTRY
SLOWDOWN IN INDIA]
[Research Paper]
INTRODUCTION
India's second-largest business vehicle manufacturer, Ashok Leyland, is suspending
manufacturing on multiple units from five to 18 days in September, causing concerns that
the slump in the automotive industry shows no sign of recovery.
India's national passenger vehicle sales decreased by 31.57 percent for the 10th consecutive
month of August, according to information published by the Indian Automotive Manufacturers
Society. India's automotive sector is facing a crisis, with a sharp decline in sales forcing
manufacturers to cut back on production. Industry insiders warn that hundreds of thousands of
jobs are at risk. One of the major problems facing Prime Minister Narendra Modi's
administration is boosting India's economic expansion and generating job possibilities for
millions of youth. Critics have consistently complained that Modi is chairing a job crisis since
he came to power in 2014.
"Make in India" was Modi's flagship economic initiative directed at converting the nation into
a worldwide production centre and generating employment in the process. As part of the plan,
the government vowed to increase the share of manufacturing in India's gross national product
(GDP) from about 16 percent to 25 percent by 2022, creating 100 million manufacturing
employment. Despite the ambitious goal of the government, there seem to be a crisis facing
many manufacturing industries. Figures released by the automotive industry this week showed
that in July, the branch encountered its worst sales performance in almost 19 years.
Passenger vehicle sales in India last month fell by the Society of Indian Automobile
Manufacturers (SIAM) on Tuesday 30% year-on-year to 200,790 cars from 290,931 units in
the same era a year previously. It was the worst sales performance in December 2000 since a
35 percent fall.
Here are some of the reasons for the auto sector slowdown

Bharat Stage VI, Regulatory Policy–Uncertainty over the future of BS-IV cars following
India's adoption of BS-VI on April 1, 2020 is one of the factors for stagnating demand for these
cars. Furthermore, in the previous nine months, the price of vehicles is estimated to have
increased 15 percent owing to compulsory additions such as airbags, inverse sensors, ABS and
crash conformity norms.

Fuel prices – Petrol prices rose by 15 percent in last four years as per information supplied by
the state-run Indian Oil Corporation. In 2019 Union budget, the government lifted-up excise
duty on petrol and diesel by Re 1.

GDP Slowdown – India's GDP growth (June) decreased by up to 5%, a low of 6 years.
Consumption fell to a low of 3.1 percent, an abysmally low of 18-quarters, from 10.6 percent.
Investment appreciation in the share market has stagnated as over the past two years the Sensex
posted a 3 percent decrease.

Employment insecurity -In less than a year, projected, 2 lakhs working mens lost their jobs in
the automotive industry. The International Labour Organization estimates that in 2018 there
were 18.6 million Indians without a job which will rise to 18.9 million by the end of this year.

Rising of Ola and Uber – Heavy congestion, lack of parking space, bad road quality, costly car
ownership cycle, and a decrease in value for money make up the reasons more individuals like
Ola and Uber and prefer ride-hailing platforms. In towns, instead of owning and driving by
themselves, individuals prefer taxis to travel.

Cultural change – Aspirational value for vehicles, particularly entrance-level hatchbacks, has
declined in recent years. Buyers are more eager to get premium hatchbacks like Maruti Suzuki
Baleno or compact SUVs like Tata Nexon as their first purchase.

Motor Vehicles Act–On September 1, 2019, the Motor Vehicle Amendment Act, adopted by
Parliament, came into force. Stricter driving laws and penalties, four to ten times higher than
their prior markings, have served as a deterrent buy. Unjust parking draws a fine of up to Rs
23,000 in Mumbai.

High interest rates, more stringent safety–Despite the RBI's rate cuts over the previous few
months, banks have not carried the advantage to the end customer. Furthermore, because of the
elevated susceptibility to defaults, banks have been additional vigilant towards lending.
Consequently, the growth of car loans stayed poor.

High insurance and registration costs-Mandatory multi-year third-party insurance acquisition

has driven greater car ownership costs. Buyers now have to purchase insurance for three years
instead of a year. The Central Government has hiked the registration charges for cars up to 13
times. However, this was postponed until June 2020.

Infra woes – Although India's National Highways Authority has added fresh stretches of
highways to the domestic grid over the previous couple of years, the quality of city roads
continues poor. Potholes that claim life have become all-time prevalent, particularly during
monsoons.

Taxation-In anticipation of a reduction in the Goods and Services Tax (GST), current car
buyers retained their purchase as per car manufacturers. The sector sought a cut from 28 percent
in GST to 18 percent. However, the government has not shown much positive attitude.

EV Policy – The ongoing push for electric mobility by the government has developed doubts
for consumers who now compare the price of ownership of a petrol / diesel vehicle with that
of a battery-powered vehicle. In the next 2-3 years, carmakers pledged to launch an inexpensive
variety of electric cars.
Leasing and self-driving module rise-Companies such as Volkswagen, Mahindra, Mercedes to
name a few have joined the car leasing room-space as a means of boosting their inventory's
usability. The rise of self-driving car businesses like Zoomcar and Myles also affected the sales
of new cars.

PROBLEM STATEMENT
To address these tough questions, leading automotive experts from different corners have
addressed the few key challenges facing the automotive market in recent years !
OBJECTIVE OF THE STUDY
The aim of this study is to discuss Indian automotive industry's slowdown. It seeks to study
consumers preferences in automotive. This research also aims to find out the reasons for the
slowdown and explore the alternatives further.

RESEARCH DESIGN

LITERATURE REVIEW
The downturn in the Indian automotive industry continues to subside in August 2019 with the
main carmakers reporting adverse sales figures. Companies such as Hyundai Motor India,
Maruti Suzuki India, Honda Cars India, During the month, Tata Motors and Mahindra &
Mahindra witnessed their sales declining, with all the hopes now pinned on the upcoming
festive season to bring any kind of joy to the industry. The country's biggest carmaker Maruti
Suzuki India's total national passenger car sales fell 36.1 percent to 93,173 units in August
2019. The figure was 1,45,895 units in August 2018. In August 2019, national sales of Hyundai
Motor India fell 16.58 percent from 45,801 units in August 2018 to 38,205 units. In August
2019, Honda Cars India saw its monthly national sales plummet 51.3% to 8,291 units. The firm
sold 17,020 units last year in the same month. Tata Motors ' national passenger car sales
decreased from 17,351 units in the same month last year by a huge 58 percent to 7,316 units in
August 2019.
The automotive sector is one of the country's biggest employers, employing directly and
indirectly about 37 million individuals. The extended slowdown in demand has caused both
manufacturing and job reductions in the industry. Original equipment manufacturers have
removed some 15,000 temporary employees in the previous two to three months, according to
the recent accessible statistics. A lack of working capital amid tepid demand has led to closure
of nearly 300 dealerships across the country.
According to the Federation of Automobile Dealers Associations (FADA), the domestic apex
of the automotive retail industry involved in the sale, service and repair of two-and three-
wheelers, passenger cars, utility vehicles, commercial vehicles (including buses and trucks)
and tractors, this has resulted in more than two lakh individuals losing their employment.
Separately.
Indian Auto industry crisis could lead to one million job cuts, says ACMA

What’s in store?

 The Finance Minister announced a stimulus package to assist the sector emerge from
its woes. Some of the movements may assist banks / NBFCs boost disbursements and
reduce borrowing expenses to some extent for consumers / auto dealers.
 Due to the restricted amounts concerned, other movements such as the greater
depreciation rate for vehicles purchased until March 31, 2020 that are not relevant to
the salaried class or private vehicle buyers or the lifting of the vehicle procurement ban
by the government may not have a important effect. In any case, FADA's pile-up
inventory now seems more of a issue for two-wheelers and CVs than for vehicles.
 The announcement to be permitted to be operational for the entire registration period
on BS IV cars bought until March 31, 2020 is only a clarification. The deadline for
stopping selling cheaper BS IV cars than BS VI cars is still 31 March 2020, making
inventory management more complicated.
 Since 2015, the tax credit has been in the works and the last we heard was that it would
be introduced in 2020 and that it would also apply only to cars over the age of 20 (which
limits the amount of scrappage incentives eligible). But alternatives are cramped by the
fiscal situation.
Sales Analysis:
In June 2019, nearly all Indian car companies reported a decrease in sales due to weak customer
feelings across all sections. Rural as well as urban regions are experiencing demand distress.
The main reason behind low consumer sentiment is the increase in car prices in the midst of
rigid safety legislation, the lingering effect of enhanced axle standards, monsoon delay,
liquidity limitations, and the muted performance of key industries like infrastructure and
mining. In both urban and rural regions, these variables dialled down demand.
The current 15 to 20 per cent cut in vehicle production in India has led to a crisis like situation
in the auto component sector. If the trend continues, an estimated ten-lakh people could be laid-
off, says Automotive Component Manufacturers Association of India (ACMA). The
association has recently announced the findings of its Industry Performance Review for fiscal
2018-19. The automotive component sector, which adds 2.3% to India's GDP, 25% to its
production GDP and offers jobs to 50 lakh individuals, stood at Rs.3.95 lakh crore (USD 57
billion) for the period April 2018 to March 2019, recording an increase of 14.5% over the
previous year.
ACMA Director-General Vinnie Mehta said, "The first half of fiscal 2018-19 saw a solid
double-digit development, but the second half saw a significant slowdown in vehicle sales. In
tandem, the component industry posted a somewhat subdued performance with a 14.5 percent
success over the past fiscal period, recording a turnover of Rs. 3.95.902 (USD 57 billion). Auto
Component exports grew by 17.1 per cent in FY 2018-19 to Rs.106,048 crore (USD 15.16
billion)”
Ram Venkataramani, President, ACMA said, "An unprecedented slowdown is facing the
automotive industry. Over the past several months, car sales in all sections have continued to
plummet. Considering that the automotive component industry is growing at the back of the
vehicle industry, a present 15-20 percent reduction in car manufacturing has resulted in a crisis
like the scenario in the automotive component industry. If the trend continues, an estimated
ten-lakh people could be laid-off.”
"The sector requires government intervention as a matter of urgency. There is an instant need
to boost car demand and also maintain it after introduction of BS-VI, as cars will eventually
become considerably costly. We strongly suggest installing 18 percent GST rate throughout
the automotive and automotive component industry, Ram added.
"As we prepare for the implementation of electrical mobility in the nation, the FAME 2 system
and the related Phased Manufacturing Program (PMP) are indeed welcome steps in this
direction and will guarantee a good ' Make in India ' program. Any further adjustments in
objectives for electric vehicle deployment would boost India's import bill and harm the present
robust ecosystem manufacturing automotive parts. This will also lead to significant work
losses. Therefore, a stable, technology agnostic, e-mobility policy is the need of the hour to
ensure a smooth transition and creation of a strong local supply base”.

Key findings:
1. Exports: Exports of auto components grew by 17.1 per cent to Rs 106.048 crore (USD 15.16
billion) from Rs 90,571 crore (USD 13.4 billion) in 2017-18. Europe accounted for 33 per
cent of exports followed by North America and Asia, with 29 per cent and 26 per cent
respectively.
2. The key export items included drive transmission & steering, engine components,
Body/Chasis, Suspension & Braking etc.
3. Imports: Imports of auto components increased by 14.4 per cent to Rs.1,23,688 crore (USD
17.6 billion) in 2018-19 from Rs.106,672 crore (USD 15.9 billion) in 2017-18. Asia
accounted for 61 per cent of imports followed by Europe and North America, with 29 per
cent and 8 per cent respectively.
4. Aftermarket: With increasing vehicle base in the country, the aftermarket in 2018-19 grew
by 9.6 per cent to Rs 67,491 crore (USD 10.1 billion) from Rs.61,601 (USD 9.2 billion) in
the previous fiscal.