ECONOMICS ASSIGNMENT

(Decline in sales in Automobile Sector)

Submitted to- Mrs. Paroma Mitra

Submitted by- Rohit

19pgpm052
 ECONOMICS ASSIGNMNENT
Why the Automobile Sector suddenly
experienced a more than 30% drop in the
sales this year?
The Indian automobile sector is going through a rough patch at the
moment. Month after month, the companies are reporting decline in
their sales numbers.
Maruti Suzuki India reported a sixth consecutive monthly sales
decline with the numbers falling 33.5 per cent 1,09,264 units in July
2019. Hyundai Motor India sales fell 3.8 per cent to 57,310 units
during the month, while the domestic sales of Honda Cars India
dived 48.67 per cent to 10,250 units. In July 2019, Mahindra &
Mahindra registered a plunge of 15 per cent in total sales to 40,142
units and Tata Motors saw its sales going down by 34 per cent to
32,938 units.

The two-wheeler manufacturers are facing a difficult situation as well.

During July 2019, the sales of TVS Motor Company fell 13 per cent
to 2,79,465 units and Royal Enfield sales dropped 22 per cent to
54,185 units. Hero MotoCorp sales dived 21.18 per cent to 5,35,810
units and Honda Motorcycle and Scooter India numbers plunged
10.77 per cent to 4,89,631 units.
Here are few of the reasons why the automobile industry is
experiencing the decline in sales:
1) Liquidity crunch post the IL&FS situation
2) weak economic health
3) tighter financing conditions
4) uncertain regulatory landscape
5) abnormal monsoon pattern
6) rural distress and poor consumer sentiments
7) Freak policy/regulatory announcements made matters worse

● Infrastructure Leasing & Financial Services Limited is an

Indian infrastructure development and finance company. It
operates through more than 250 subsidiaries including IL
& FS Investment managers, IL & FS financial services and
IL & FS Transportation networks India Limited. Non-
banking finance companies (NBFCs) in India are going
 through a rough phase following defaults by once a
bluechip infrastructure lender, Infrastructure Leasing and
Financial Services (IL&FS), on short-term debt
obligations. The liquidity crunch in the sector has created
tensions between the Reserve Bank of India and the
government. More than half the vehicles sold in rural
markets is financed by NBFCs. With falling auto sales,
dealers have been left with more inventory which means
they need more working capital from NBFCs—which is
either not available or comes with demands for more
collateral. The liquidity crisis in NBFCs is likely to have
an impact on auto industry and in some quarters, we have
already seen this. There are certain segments like
passenger vehicles where customers have other
alternatives but in commercial vehicles this will play out
differently. 70% of two-wheeler sales and 60% of
commercial vehicles sales are financed by NBFCs. NBFCs
have exposure to vehicle financing in every category
especially in the semi-urban and rural markets and the lack
of credit has hit every stakeholder in the value chain. The
industry lobby also pointed out that with the upfront
payment of the goods and services tax dealers are facing a
crunch for working capital loans. According to retail sales
data released by FADA, passenger vehicle sales during the
first three quarters of the current fiscal (April to
December) declined 2% year-on-year to 1,917,750 units,
while sales of two-wheelers increased by only 5% y-o-y to
11,071,352 units.
● 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. It was the worst sales performance since a
35% decline in December 2000. Maruti Suzuki India Ltd
reduced wholesales of its Vitara Brezza compact sport
utility vehicle because of weak demand, emerging
 competition and its recently announced plans to phase out
diesel vehicles from next April. Weak domestic economic
activity and escalating global trade tensions led the
Reserve Bank of India to cut India’s growth projection for
2019-20 to 6.9% last week from its June forecast of 7%.
Severe floods in key states such as Maharashtra, Kerala
and Karnataka before the onset of Onam and Ganesh
Chaturthi are also impacting the fortunes of the automobile
industry.
● the Indian economy isn’t in the pink of health. The growth
figure for the third quarter of FY19 was merely 6.6% —
the lowest in five quarters. Other indicators like two-
wheeler sales and air-traffic growth are also flashing
amber. If the slump in car sales is part of this larger story,
it presents a worrying picture for the incoming government
because private consumption has been a strong pillar of
India’s growth story even as investment, government
spending and exports have remained volatile.
● The first month of the calendar year 2019 took off in a
slow lane, marred by tough market conditions like high-
interest rate, vehicle price hike and low consumer
sentiment. The tightening of vehicle financing availability
has also added to the challenges in the market. Passenger
vehicle sales remained under pressure in January, with top
five car makers reporting negative or flat sales growth, hit
by continued challenges of higher insurance cost and poor
finance availability.
● the automobile industry has particularly suffered from
regulatory and policy uncertainties. With growing levels of
pollution, India had decided to skip the BS-V emission
norms entirely. And then the Supreme Court decided to
ban the sale of vehicles conforming to BS-IV standards
from April 1, 2020. Now car companies will have to
comply with BS-VI standards from 2020 — four years
earlier than the original plan. It is no surprise that Maruti
has decided to not manufacture diesel vehicles from April
2020. The shift to electric vehicles presents another area of
uncertainty. While the government has rolled back its
initial unrealistic goal of moving to a 100% electric fleet
by 2030, the emphasis on electric vehicles doesn’t square
with high-cost batteries and price-sensitive consumers. In
effect, both the industry and the consumers have a lot to
figure out.
● For example, last year, West Bengal restricted two-
wheeler registration only to people with driving licence,
hitting sales. With multiple ministries interfering, policy
flip-flops have been aplenty. “A dedicated ministry for
such an important industry will help in effective
policymaking,” says Sumit Sawhney, former managing
director, Renault India.