Source: indiatoday

REASONS

 HIGH RATE OF GST (@28%) : The high GST rate i.e. 28% is levied on all vehicles by the government.
This is one of the major reasons for the decline in sales in the auto sector. Currently like other categories
two wheelers also attract a GST of 28% plus 1% cess for engine capacity upto 350cc. As already shown
above the decrease in sales of bikes and scooters in respect to passenger vehicles is much more.
According to different automakes and Society of Indian Automobile Manufacturers (SIAM) the GST of 28%
for all vehicles should be replaced with 18%.
 General elections : As we all know Automobiles are luxury goods. With such heavy GST levied on
automobiles , funds form tax are use for promotional and organizational activities for elections, making it
indirectly a reason for the awareness of the customers , who in turn drop down the thought of buying an
automobile, instead he would use his hard earned money to buy necessary goods and for future savings.
 Decrease in purchasing power: the purchasing power factor shows problems in both the rural and urban
areas. A agro based families who can think of buying a scooty for necessary transportation have to leave
such a thought for the decrease in cost of agricultural products. On the other hand , in urban areas as well
as rural areas people do not cut down the list of FMCG products they need. These are necessary items and
so they continue buying these stuffs (some buy more to stock for future use). Therefore if considered
annually, the lower and the middle class people that covers more than half the population would focus more
on spending money for immediate needs than luxury needs. These factors decrease the purchasing power
of the customers.
 Demonitisation : a reason with its long term effect is demonitisation which had its impact on the psyche of
people. People are stalling the purchase of new cars and are buying second hand cars that would serve the
same purpose as the new ones.
 App cabs: app cabs these days has cast its shadow over the automobile industry. Its easy availability and
well service has not only laid its hands over the yellow cabs but has also made easier the busy scheduled
lives of working people. The high cost of the automobile itself , the extra cost of a permanent driver and the
costs of maintenance of a single vehicle is much more than the usage of the app cabs and bikes when
needed , annually.
 Introduction of Environmental norms : As informed, the imposition of BHARAT STAGE-VI norms -
standards instituted by the government to regulate the emission of air pollutants from motor vehicles, will be
exercised from April 2020 – leaving the potential buyers confused. While compliance with BS-VI norms will
require higher investment in technology, the BS VI-compliant fuel will be more expensive.The diesel cost will
go up at a higher rate than the petrol cost. This resulted in the decrease in sales , keeping in mind the
market of 2020. While people are confused about the BS-VI norms, and the fuel rates at that time, many are
also waiting for attractive deals closer to BS-VI implementation.
 NBFC CRISIS : The Non Banking Financial Company(NBFC) crisis has also affected the demand of
automobiles. It curtailed financing to new vehicles, as it was financing customers who were not preferred for
financing by other banks. Hence, this is directly proportional to demand by customers for automobiles. With
the decrease in loans from NBFC , the demand for automobiles has also gone down.
 Environmental factors: Heavy floods in Kerala , Assam , heavy rainfall in Maharashtra by cyclone “Vayu” ,
flood caused by breach of Tiware Dam in Maharashtra and impact of cyclone “Fani” in Orissa has adversely
affected the economy of those states. This resulted in decrease in purchase of luxury goods such as
automobiles in those states . This has affected the overall automobile sale in the country.
 High fuel costs: high fuel price can be one of the important factor for the recent slowdown of automobile
sales. According to a recent research the company level stock prices data shows that the valuation of auto
firms reacts inversely to fuel price movements. Therefore an increase in the fuel price leads to the decrease
in demand for automobiles. As a result of increase in exise duty,VAT or sale tax on petrol and diesel, their
price has gone up. Petrol and diesel price increase by over Rs 2 after budget announcement. This has
affected the sale of automobiles as the running cost of vehicles is becoming high constantly. Even if a
person can afford to buy a vehicle he steps back thinking about the running cost.
 Car loan: In the current economic environment, banks have become more strict about giving out loans, favouring
only those individuals with high CIBIL scores. 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. Moreover the high interest rates of the loans leads
 customers to think twice before taking loans for buying automobiles. Majority of the consumers buy car through car
loan only. With the increase in interest in loan the value of the equated monthly installments(emi) is also
increasing.But income of people is increaing at a much slower rate when compared to expenditure. It is becoming
difficult for the consumer to bear the burden of huge emi. This is also responsible for decrease in sale in vehicle sale.
 Electronic cars: the government terms of electric mobility and electric vehicles leaves both automakers and buyers
with many uncertainties about what to invest in and more critically when to invest. Sufficient range in EVs with
affordability re a must for electric mobility to become reality. Government has also reduced GST rates for EVs in india.
Though there are certain confusions about charge stations and technology , the very thought of such a vehicle makes
customers hold their breath a bit more, reducing the sales of automobiles.
 Crowded city: within the hassles of owning a car comes the thought of being stuck in traffic. In todays world, with
lots of important things to think of, the very thought of waiting for the signal, office pressure, driver, car stractches
and finding a suitable parking area curtails the demand for owning a personal car. Such time can easily be spent at the
back seat of a ola/uber
 Low cost substitutes: though this factor does not show the overall decrease in sales of the industry, but it shows
the comparison of sales between cars of different price range. Due to low cost cars like tata nano, high cost sedans
experience in decrease in demand. The income and low price purchasing attitudes and nuclear families are reasons
for such choices
 Sluggish economy: the Indian economy is a slow growing economy based primarily on
agricultural factors. Even if you consider the growth as strong in terms of GDP, the
investment climate is pretty poor. Notwithstanding India's progress on growth and
inflation, some of the big challenges for the economy include weak investment, muted
monetary transmission and slow GST collections . The distress in the hinterland of the
country on account of agrarian distress is well captured by two-wheeler sales, which
have declined for five straight months. In April, sales are estimated to have dropped by
more than 16 per cent. In fiscal 2019 as a whole also, sales had grown by a tepid 5 per
cent, slowest since 2015-16.
Higher ownership costs: the government has put GST on purchase of every single item,
increased rate of interests and introduced many different taxes for automobiles. The purchase
price of a car isn’t the real cost of owning it as in the long run, there will be a number of
additional costs and expenses that the owner will have to probably incur. For example, if you
are planning to purchase a car by investing Rs.5 lakh, this is not the only expense that you have
to make for the car. In the coming 5 to 10 years, several other expenses including the
registration tax, road tax, car insurance premium, car loan EMIs (if you have taken any),
monthly fuel expenses, car maintenance and servicing cost, assessories costs will get added to
the list. These factors are not accepted by many customers which decreases the sale of
automobiles.

TAXES

Corporate Tax: Corporate Income Tax of 30% is charged for the companies having more than 250 crores
of turnover - this makes large players of the market incapable to invest in more technology to produce
low cost vehicles.
 Duty Exemption: No duty exemption given for "Plug-in hybrids" and on raw material such as steel and
aluminium which attract 15 per cent and 10 per cent, respectively. This is a major concern for luxury car
manufactureres like Mercedes-Benz, which is making efficient fuel handling engines in their cars. While
there are tax exemptions for Electric Vehicles, Plug-in hybrids are also a Go Green method, which is
being suffered by Heavy duties