Auto sales in India which used to be among the fastest growing globally till recently have been struggling for a year. A liquidity crisis triggered by finance company Infrastructure, Leasing and Financial Services defaulting on its bank loans last year caused sales to slow down. New regulations on insurance, higher road taxes, and new axle norms made sales splutter. Passenger vehicle sales touched a two-decade low in July.
“We don’t see sales bouncing back till the middle of the next fiscal (FY20-21) by which time the increased price of cars post-BS-VI will settle down and the economy will improve,” said Mitul Shah, vice president, research, Reliance Securities.
Other analysts also believe that unless the government intervenes with a sentiment booster, demand revival doesn’t seem to be on the cards in the near term.
A stockpile at the dealerships and factories has prompted companies to declare ‘no production’ days. On an average, each of the main companies has been resorting to a temporary closure of their factories for seven to eight days a month. The closures and production cuts have forced them to lay off temporary workers.
“A total of 15,000 temporary/casual workers have been laid off by the vehicle manufacturers alone in the last three to four months,” said SIAM director general Vishnu Mathur.
While these numbers may look small, explained Wadhera, they have a huge multiplier effect. “If I ask someone to go, my dealer and vendor will also ask somebody to go. If I lose 100 people, the ecosystem loses 2,000 people,” he said.
Meanwhile, auto component makers are also in dire straits. “It’s no more a slowdown, it’s a recession,” said Deepak Jain, CMD, Lumax Industries which makes automotive lighting and other auto parts.
The company has been tightening its belt to survive the downturn, freezing recruitment and pay hikes, shelving green field projects, and cutting fixed costs. Jain warned that if the situation continues beyond the festive season, Lumax will have to take more stringent measures such as retrenching as many as 1,000 of its 9,000 strong workforce.
What dismays automakers the most is the government’s failure to take measures to kick-start growth. “I don’t see any support coming from the government. They are only talking but nothing is happening on the ground,” said Wadhera.
Bhargava is waiting to see what the government does, both at the centre and at the state level where, he insists, much can be done. He gives the example (albeit a negative one), of how at least nine state governments have increased road taxes in the last few months - a move he called ‘ill-timed and counter-productive’ because it hit sales and revenues, and destroyed jobs.
For Wadhera, the current slowdown a ‘structured one’ which is the result of the multiple regulations pushed by the government in the last three years. These have resulted in the cost of cars, commodities, insurance, and registration going up. “Anybody and everybody who can hit the auto industry
has done so,” said Wadhera.
For a rebound, executives and analysts say the industry will need similar government interventions as those mentioned by Wadhera but, of course, in reverse. If the slowdown had been cyclical, sales would have recovered on their own; since it isn’t, the government needs to act, particularly on improving liquidity.
Despite a record cut in the repo rate, on the ground, this is being converted into a lower rate because the people who lend money have lost money so when they lend now, they have to do so at a higher rate of interest, said Wadhera.