Slow down in the automotive sector- FACTS Vs REALITY

Automotive sector-SAmple image

Slow down in the automotive sector is due to slow down in the economy or a lending problem.

This is a talk of the town that slowdown in the automotive sector is a problem representing a slowdown in the economy or just a lending problem due to crisis in NBFC.

In most of the business channels and print media; mostly leftist media is highlighting this issue as a slowdown in the economy and representing it as a failure of government policy to handle the economy.

Maruti Suzuki a leader in passenger vehicle reported a 32.7% decline in its total vehicle sales in August 2019 on a year-on-year basis. Last month, Maruti Suzuki sold a total of 1, 06,413 units, including exports, compared to 1, 58,189 vehicles in August 2018.

The company also decided to shut down the production of cars in Gurugram and Manesar plants in Haryana for 2 days.

Other big giant Tata Motor is also facing the same problem but not for the same reasons. The company is facing problems for a long time due to its investment and some corporate decisions. Companies share is now trading at Rs. 120 down from its high of around 540 in January 2016.

Tata motor is blaming government for non-clarity on GST and scrappage policy. The consumer is in wait and watch on uncertainties related to BS-VI emission norms transition.

So, Tata motor wants clarity on above reasons but this argument is the best fit or not, it will be cleared in the coming time.

But many auto manufacturers started demanding of a rate cut in GST on vehicle. They started to create pressure on the Government to address this issue.

PTI reports that in the two-wheeler category, Hero MotoCorp posted a 22.9 % drop in sales at 5,11,374 units, while rival Honda Motorcycle and Scooter India (HMSI) saw sales decline by 10.53 % to 4,55,036 units. TVS Motor Company saw its sales decline by 15.72% at 2, 08,489 units in July.

“Automobile sales in India witnessed its sharpest decline in nearly 19 years in July, dropping 18.71%, rendering almost 15,000 workers jobless over the past two-three months as the sector reels under a prolonged slump”

Auto industry body SIAM reported

Speaking at the Society of Indian Automobile Manufacturers (SIAM) annual convention, Cabinet minister Nitin Gadkari said that the slowdown in the automotive sector is due to slow down in the Global Economy.

The automotive industry is facing Destructive changes in the sector. So, companies whch can adjust and implement new technology as early as possible are survive in the sector. Governments target to reduce pollution levels and reduce the dependency on import of crude oil, for this the Government reduces the GST on the electric vehicle.

Many economists said that this is the issue that comes from a long slow down due to a liquidity crisis that happened during the demonetization. At that time nearly 86% of currency value in circulation was withdrawn with immediate effect.

The effect of demonetization is reflecting now in the economy. Some other figures like unemployment figures, and slow down in passenger and heavy vehicle demand is supporting this argument.

Demonetization is come in November 2016, and must of liquidity return in the system within a year. So, a sudden demand crisis is due to demonetization needs more evidence and support from other sector like cement, housing demand, metal etc.

The main reason that government agencies and some print and electronic media highlighting is the crisis in non-banking financial companies (NBFC). In India, around 30 to 40% of two and four wheelers are financed by these NBFCs.

After the crisis in the IL&FS group, many NBFC also facing problems due to their exposure to the group. This crisis is now adversely impacting the slowdown in the automotive industry.

The liquidity constraints in the system creating problems to get loans from these NBFCs and banks provide loans with the tight documentation process. Due to this demand in rural India is sluggish.

If the Government and the RBI solve the problem of liquidity in NBFC then and then only the demand will be accelerate again.

Companies now trying to create pressure on the government to reduce the GST charges. It’s on Government to find out the real issue and solve it as soon as possible.

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