The current decline of the automotive industry can be credited to various factors.

We take a look at
those that likely made the most impact

It is no secret that the automotive industry in India is in a bad spot right now as the production and
sales numbers continue to drop month after month. Part of the consequences include vehicle
manufacturers having to cut jobs as they reduce their output in an attempt to maintain their own
fiscal balances.

Some reports suggest that upto 3.5 lakh automotive jobs in India have been cut since April 2019 and
more than 200 dealerships have had to shut shop. These numbers are likely to go up as the downward
trend continues. A large variety of factors have cumulatively led to this situation and we try to
understand those which seem to have played a dominant role in it.

1| Harder To Get Loans

In the current economic environment, banks have become more strict about giving out loans,
favouring only those individuals with high CIBIL scores. Transunion CIBIL tracks and monitors the loan
repayment histories of financial consumers in India and is a trusted establishment used by banks and
financial institutions to assess a person’s credit worthiness.

Since people with lower CIBIL scores are not able to get loans as easily, they are not able to purchase
high value assets, such as cars.

Banks are also being stringent in lending money to dealers to capitalise their inventory. Often, the
production numbers for car manufacturers are helped by their dealerships placing orders to stock up
for potential customers. So, if dealers cannot get loans as easily, then they too will order fewer units.

2| Confusion around BS6 emission standards

Bharat Stage 6, more commonly referred to as BS6, is a standard of emission norms set by the
government of India. These norms apply to both fuel and the engine. Currently, BS4 emission norms
are in effect and all car models sold today are compliant with it. The BS6 compliant engines would be
less polluting in terms of the gases and particulate matter emitted from them.

By April 2020, the BS6 emission norms will come into effect and all car manufacturers will have to
upgrade their engine offerings accordingly. Not all carmakers have clarified their position regarding
the upcoming shift and how it will affect their product lineup that is offered to customers. As a result,
certain buyers are delaying their new car purchase until there are more details available regarding
BS6-compliant model choices.
Availability of BS6 fuel across the country is another uncertainty of the public. However, BS6 fuel has
been on sale in Delhi since 2018 and cars with BS4 compliant engines do not suffer any additional wear
or tear from running on this higher grade of fuel.

3| Uncertainty of Diesel in the BS6 era

Whether carmakers upgrade existing engines to meet the upcoming BS6 emission norms or make new
ones, it is a big investment. The extra cost will undoubtedly be borne by the customers as well in the
prices of the final product - the car.

Upgrading petrol engines is relatively cheaper thanks to the more refined nature of the fuel itself. For
instance, Maruti updated majority of its petrol engines to be BS6 compliant while keeping the price
bump to just under Rs 30,000.

However, there is a huge cost in making diesel engines compliant to BS6 standards with an expected
jump of at least a lakh rupees for all diesel-powered variants of different cars. Diesel cars already
command a significant premium over their naturally-aspirated petrol engine variants.

Smaller, affordable cars which use smaller, more fuel efficient diesel engines amount for a
considerable volume of total car sales. If these get too pricey relative to the petrol variants, fewer
people are likely to opt for it. As a result, not all small diesel engines will continue to be offered in the
BS6-era.

The increasing price of diesel fuel and its diminishing savings prospect in comparison to petrol, is also
a factor. Moreover, the use of mild-hybrid tech with petrol engines is bridging the fuel efficiency gap
between the two fuel types.

The life-span limit of 10 years imposed for diesel-engined cars in Delhi which is expected to be
implemented in other parts of the country does not improve matters.

India’s largest carmaker Maruti already announced that it will discontinue offering diesel engines
altogether and its 1.3-litre diesel can be found in nearly half of its product lineup as of now. On the
other hand, Hyundai announced that it will continue offering its models with BS6 diesel engines too.

This uncertainty from carmakers has also resulted in hesitation from those who would likely buy a new
diesel-powered car.

4| Waiting for attractive deals closer to BS6 implementation

The above mentioned points have also led to some new car buyers to wait for the BS6 deadline to
draw closer in order to get the best possible deals. Dealerships and carmakers are expected to be
scrambling to get rid of new car inventory with BS4 engines while they can still get registered. In that
rush, buyers are likely to be offered ridiculous discounts to get those models off their hands.

A similar situation already happened in 2017 when the sale of BS3 vehicles was banned. Certain
manufacturers, particularly from the two-wheeler industry, were still hoping for an extension on the
deadline for the sale of BS3 models. However, when the decision and date were finalised,
manufacturers offered great discounts to get rid of their BS3 inventory.

5| The UBER-OLA Factor

Taxis have been around for many decades. However, they were always quite expensive, hard to find
and taxi drivers were infamous for their unreliable services. Today, thanks to the boon of the
smartphone and cheap internet, we have convenient cab services from apps like Uber and Ola.

In fact, in the last year or so, these two apps have gone beyond just booking a cab; they even allow
you to book autorickshaws and motorbikes for shorter distances. With the added convenience of
online fare payments, the use of these apps for smaller commutes seems a more favourable prospect
than buying your own car and the hassles that come with it.

6| Big Cities Are Too Crowded

Speaking of the hassles of owning a car, the first one to mind is that of being stuck in traffic. A large
volume of car sales is driven by young, upcoming professionals with growing incomes and fewer
liabilities. But even if you have the money to buy a car, you will likely spend a lot of your time driving
it in congested traffic and/ or looking for a suitable parking space.

he stress of having your car scratched by a careless delivery-rider or auto rickshaw or cabbie in traffic
or in a tight parking spot is no small matter. A regular commute with plenty of traffic takes up a lot of
time and energy as well. Time and energy that could be spent working or resting in the back of an
Uber/Ola cab during your commute.

7| Too many back-to-back changes in the industry

When there is too much going on in terms of changes and uncertainties regarding regulations and
government policy, it is almost common sense to sit back and not act until things have settled down.
The car industry today is in a similar state.
In the last year or so, there have been numerous changes enforced by new regulations with more
changes on the way. From mandatory safety features for all new cars to increasing the road tax, rising
insurance costs to upcoming emission norms.

Each of these types of changes, even if necessary, tend to lead to an increase in prices which deters
new buyers in the mass market.

8| The Electrification Equation

Even the government’s rhetoric surrounding electric mobility and electric vehicles leaves many
uncertainties for both carmaker and buyers about what to invest in and more critically, when to invest.

Affordable EVs with sufficient range are a must for the electric mobility shift to become reality.
However, this goal is harder than it seems as the current battery technology is not at that stage yet
and neither is their charging infrastructure. For instance, the Maruti WagonR-based EV is likely to be
priced around Rs 10 lakh with a realistic range of around 200km.

Promises made and goals set are not enough for the breakthrough that is required to make e-mobility
a mass market option in India. The production and development of electric powertrains, battery tech
and charging infrastructure is still in its early stages and will likely take another 5 to 8 years before
mass EV adoption begins.

Recently, the government has reduced GST rates for EVs in India. However, its effectiveness in the EV-
push has not been as confidence inspiring as some may have hoped, largely due to the surrounding
factors mentioned above.

The Indian automobile industry has failed to shake off the slowdown that has been plaguing it for
months now. Auto sales across all segments continued the downtrend in June as manufacturers cut
production to keep inventory in check amid weak retail sales and subdued consumer sentiment.

During the month, domestic sales across passenger vehicles (PVs), commercial vehicles (CVs) as well
as two- and three-wheelers fell 12 per cent year-on-year, industry body Society of Indian Automobile
Manufacturer (Siam) said. The combined sales of all automobiles fell to 1.9 million units in June against
2. 2 million units a year ago.

So, how does this slowdown then compare to the ones the automobile industry faced in the past?
How swift will the recovery be? Edelweiss Securities, in its report dated July 10, has compared the
current slowdown with the past 20 years' demand cycles and concluded that this time, it's different.
The difference can be seen on four counts, the report said. They are:

Domestic factors driven

Slowing income growth and Non-banking financial companies (NBFC) crisis are primary reasons for
the current slowdown compared to earlier cycles which had been triggered by global events like Asian
crisis, Dotcom bubble, global financial crisis, etc.

The recent NBFC crisis had a twin effect on demand. It curtailed financing to new vehicles, and NBFC
were financing customers who were not preferred for financing by banks. Hence, revival of lending by
NBFC is critical for demand revival.

Sharp regulatory cost pressure

Over FY19-21, vehicle prices are estimated to jump 13-30 per cent (1-2 per cent per annum over
previous decade) due to safety, insurance and emission related compliance costs. Come April 2020,
India will upgrade to BS-VI from BS-IV emission standard Given that general price hike over the
previous decade was 1-2 per cent per annum, a sharp increase in vehicle prices over FY19-21 can
restrict the recovery.

Stiff competition from growing organised pre-owned vehicle market

Over the past five years, the size of pre-owned market has expanded significantly, with higher share
of organised players. For instance, in passenger venhicle (PV), a significantly higher growth in pre-
owned cars over the past two years is a reflection of rising consumer interest in this segment. This
may impact new vehicle demand, especially in case of sharp price hikes.

Significant margin pressure

The decline in gross and earnings before interest, depreciation, and amoratisation (EBITDA) margins
in the current cycle is far higher compared to previous slowdowns with maximum impact on Bajaj
Auto and Maruti Suzuki India Limited. In case of EIM, for the first time, decline in EBITDA margin is
higher than in gross margin. This is due to increase in fixed cost on account of investment in product
development capabilities and marketing in international geographies.

Hence, says the report, the recent slowdown is much sharper than the previous cycle on the margin
front.
"This seems to be a result of a combination of huge inventory reduction exercise as well genuine
demand softness. These factors raise doubts on the industry’s ability to pass on the regulatory cost
pressure without compromising on margin.," the report said.

What's the road ahead then?

"At the current juncture, we believe, volume recovery is unlikely to be as sharp as in the past, unless
there is strong stimulus support. Also, Original Equipment Makers (OEMs) may be compelled to absorb
some of the BSVI costs to revive volumes, especially in two-wheelers and passenger vehicles. In
medium and heavy commercial vehicle (M&HCV), we believe the current slowdown is more due to
the economic cycle rather than over-capacity in the system, as reflected in strong freight rates
(compared to previous slowdown phases)," the report says.

About the impact of BSVI transition, the report says it's unlikely to majorly impact M&HCV demand as
long as truck operators are able to pass on the costs. "We do not expect any major pre-buying and
hence do not expect significant sales dip in FY21," it said.

Indian unit to drive Ford’s 100 emerging markets push- solution

Ford’s Indian operations MD Anurag Mehrotra has been tasked with product portfolio management
in tandem with Mahindra to cater to the 18-million-unit-per-annum market.

MUMBAI: Having carved out China as an independent market from the Asia-Pacific region, US
carmaker Ford Motor has formed an International Markets Group (IMG) consisting of 100 emerging
markets as a separate cluster.

The IMG structure will be operational by January 2020, and the company's Indian subsidiary,
supported by its strategic alliance with Mahindra, is expected to play a crucial role in its future growth
map. Ford’s Indian operations MD Anurag Mehrotra has been tasked with product portfolio
management in tandem with Mahindra to cater to the 18-million-unit-per-annum market.

While sharing of vehicle architectures and engines has been announced, including the electric and
connected vehicle technology, people in the know said the discussion goes beyond India to build
economies of scale and participate in the next growth opportunities outside of India.

Despite being in the Indian market for over a couple of decades, Ford India has not been able to build
volumes beyond 1-1.2 lakh units per annum; ditto for Mahindra & Mahindra’s passenger vehicle
division wh ..
Read more at:

//economictimes.indiatimes.com/articleshow/70251260.cms?utm_source=contentofinterest&utm_
medium=text&utm_campaign=cppst

https://economictimes.indiatimes.com/industry/auto/auto-news/indian-unit-to-drive-fords-100-
emerging-markets-push/articleshow/70251260.cms

problem - https://economictimes.indiatimes.com/industry/auto/auto-news/indian-unit-to-drive-
fords-100-emerging-markets-push/articleshow/70251260.cms

https://www.news18.com/news/opinion/whats-driving-indias-auto-market-slowdown-and-why-a-
course-correction-must-be-top-govt-priority-2270349.html- problems and why govt should
intervene.