A study of the Current trend of Automobile Industry

The industry slowdown over the past 8-9 months has seen the volume of production reducing at an
alarming rate. The decrease of production volume, lay-offs, declaration of non-production days has
led to a sorry state of affairs. The sales figures released by Society of Indian Automobile
Manufacturers reveal that the sales have plummeted a whopping 31.6% in the month of August
compared to the previous year. This is the tenth straight month in which the sales have seen a
decline.

This drop has happened in spite of fresh launches across segments – MG Hector, Mahindra XUV300,
Hyundai Venue, Kia Seltos. The huge drop has led manufacturers to take measures to level their
sinking ship. They have taken measures such as offering discounts to boost sales but are yet to see
the results of the same.

This has led to some other drastic measures that they are forced to take – cut down on production
to balance the staggering amount of unsold inventory, declaring non-production days/shifts, even
going so far as to lay-off contract labour (CLs make up a major chunk of the automobile industry’s
work-force). The dealers are also in-turn forced to a similar corner – cut jobs, sometimes even
closure of dealerships.

We need to take stock of the situation and try to understand why the numbers are so shoddy.

1. Introduction of BS-6 norms for passenger & commercial vehicles:

India is set to shift to the considerably stricter emission norms of Bharath Stage-6
from the month of April 2020. This has only caused a lot of confusion among buyers
as to what will happen to their BS-4 vehicles. This is one of the main factors that
have made people hold off their decision to buy immediately.

From an auto-maker’s point of view, the huge inventory of BS-4 vehicles is an

immense challenge. The government has strictly imposed that sale/registration of
vehicles that are not BS-6 compliant cannot happen after March 31st. 2020. Hence
they are offering huge discounts so that they can liquidate the BS4 inventory. This
also means that they cannot produce more BS-4 vehicles as people are confused
about buying them.

Note: Currently GoI has issued a clarification that BS-4 vehicles purchased until
March 31st, 2020 can be used until the expiry of its registration (15 years from date
of registration)

2. Restricted buying capacity:

Banks and NBFC across the country have made their lending guidelines much stricter
owing to a lot of bad/failed loans. This has majorly caused a constraint on
automobile sales in Tier-2 and Tier-3 cities as loans are only provided to people who
have a very high credit rating (CIBIL score).

Vinod A
 3. No clarity on the plan for Electric Vehicles:

The GoI is vigorously pushing for a complete shift to EVs by the end of 2030.
However, in terms of road-readiness, we have a long way to go. The infrastructure
necessary for a complete electric-car environment is yet to be mapped and there is
no clarity on that front, from the government.

As the push for EVs is evident with the FAME scheme (reduction on GST rates for
EVs, tax exemption for loans to purchase EVs, etc.), customers are delaying the
decision to buy cars now as they are scared that any new vehicle purchased now
might become obsolete in less than a decade. The migration to an all-electric
environment is a great idea in principle, but it is directly affecting sales in the short
term and also needs a lot of planning & execution for the necessary infrastructure.
In the present scenario, all it has achieved in doing is create a sense of confusion
among the customers.

4. The increasing presence of Ride-sharing services (Ola/Uber, etc.):

Gone are the days when majority of the people in our country aspired to own a car.
Today is the day of such technological advancement that you are picked up from
your door-step and dropped at any required destination at the click of a button. This
has led people to rethink their needs to purchase a car. The initial cost of purchase,
the day-to-day fuel costs, cost of maintenance (services, insurance, etc.) all make it a
big burden for the owner. It has become very easy for people to decide not to make
a purchase due to the availability of various services for their transporting needs.

The Future: Though we are all expecting a market correction in the near future (approximately by
mid-2020), the challenge for the automobile industry in India is not over.

1. The next step is to enforce stricter CAFE norms (Corporate Average Fuel Economy/Efficiency).
These regulations define the weighted average fuel economy for the auto manufacturer as a whole
(considering only sold vehicles). These regulations also aim at reduction of carbon-di-oxide
emissions. This is already enforced in most developed and developing countries. It was enforced in
India from April 2017 with a target of keeping CO2 emissions lower than 130gm/km. These norms
are going to be stricter from 2021 (CO2 < 113gm/km)

2. Further down the line we are going to be implementing Indian Real Driving Emissions system
which is going to be mandated from 2023. This is a measure of the emissions from the vehicle in
actual road driving conditions as against the lab/simulated conditions in Bharath Stage emission
norms at present.

The designers at all the auto companies in India are going to held busy until 2023 with a slew of
reforms and regulations planned by the government aimed at bringing about cleaner/safer air to
breathe. However, these regulations are expected to cause more confusion in the mind of the
customers and might result in them waiting even longer before making a purchase decision.

Vinod A