Will rural sector buck the trend and help revive auto sector?

Chennai: The Indian automotive industry had been running rings around its counterparts from other nations in terms of growth, production and ensuing rise in revenue.

Or so thought people related to the industry until the Automotive Component Manufactures Association, put in short ACMA, an apex body representing the interests of the Indian auto component industry, announced that around one million jobs could be lost if the slowdown, that has set in unnoticed last year, persisted.

The entire nation sat up and took notice only when such a bomb was dropped by an entity that resonates the reality of the industry.

Not long after that country’s top passenger car manufacturer Maruti Suzuki announced that it sold near enough 18 (17.9) per cent less number¬† of products during the first quarter of the financial year 2020. A carmaker that holds more than half of the market share had seen sales lower by 19.3 per cent in one quarter in the domestic market alone.

Net profit tanked by 27.3 per cent to Rs 1,4355 crore. Maruti Suzuki India (MSI) announced that the result was largely on account of lower sales volume and higher depreciation expenses.

The sector has been struggling to find its feet from September last year as numbers suggest. Demand had slowed down due to liquidity crunch, a long election process and rise in prices of fuel, apart from a huge hike in vehicle insurance costs, among others.

The country’s second largest carmaker and the largest exporter, Hyundai Motor India, saw sales decline by 7 per cent. Toyota Kirloskar Motor, Honda Cars India, Tata Motors, all followed the same path.

“The auto industry is going through its worst slowdown with continuous decline for many months. Going forward, any initiative which can jumpstart the demand will definitely be a positive for the industry,” said senior vice-president and director, Sales and Marketing, Honda Cars India, Rajesh Goel after the firm released its Q1 results.

“Customer sentiments remained low due to the overall slowdown in economic growth. Consumer expectations on revised GST rate on cars and limited liquidity availability kept them from firming their buying decision this month,” VP, Sales and Marketing, Passenger Vehicle Business Unit, Tata Motors, Sibendra Barman had stated after the quarter results were announced.

It wasn’t much of a shock when Maruti’s stocks were downgraded by many brokerages. The company had admitted that it will not push stocks this festive season as it feels there is no need during stressful times.

“There is no point pushing the 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 more than a month with our dealers since retail sales is under pressure,” senior executive director for sales and marketing at Maruti Suzuki, R S Kalsi, said in a conference call with analysts recently.

To counter costs, some manufacturers including Mercedes-Benz and Hyundai have announced hike in prices from August.

It must be noted that cess on automotive fuel was increased during the Union Budget, while it was recently announced that GST on EVs and EV chargers will be down to 5 per cent, as the government continues its push on the industry and the public towards adopting electric mobility, adding another pain point for carmakers.

Sridhar V

Speaking about the market, partner, Grant Thornton India LLP, Sridhar V, said, “EVs are not cannibalising sales. There is an apparent slowdown and while it started with cars, it dragged down two-wheeler and commercial vehicle sales as well. Variations in pricing of fuel that was spurred by the USA’s sanctions, the issue with IL&FS and NBFCs meant there is negative sentiment overall.”

According to him, though the hike in insurance costs affected the two-wheeler sector, it is a combination of factors that affected the entire industry and that includes BS6.

“Manufacturers will have to reduce BS4 inventory and be ready with BS6 vehicles by March. BS6 might bring some growth with it,” he said.

He also stated that manufacturers are in pain due to recent measures. But hope is there in sectors that have not breached the roof.

“The industry hit its peak during 2017 and 2018. When we compare present sales with that, slowdown will be apparent. However, if the rural market does well and if we see good results such as improved infrastructure, the sentiment might improve. It is rural India that might potentially help growth revive,” said Sridhar.

Praveen Kumar S