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Auto Sector Slowdown to Continue in 2020 as BS-VI Norms Dent Consumer Sentiment

Image for Representation
(Image: AFP Relaxnews)

Image for Representation (Image: AFP Relaxnews)

The current Automobile Industry slowdown is a culmination of high GST tax rates, farm distress, stagnant wages and liquidity constraints. Industry insiders are hoping for increased sales in the festive season.

  • IANS
  • Last Updated: August 8, 2019, 9:58 AM IST
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The automobile industry is expected to face sales downturn during the first quarter of the next fiscal year as high prices on the back of BS-VI introduction dent consumer sentiments. However, industry insiders and analysts opined that the sector will receive a reprieve from the sales de-growth during the upcoming festive season. Lately, a massive sales de-growth has impacted the sector. The slowdown is a culmination of high GST tax rates, farm distress, stagnant wages and liquidity constraints.

Besides, inventory pile-up at the dealership level and stock management of the unsold BS-IV vehicles has become a problem for the sector. Similarly, price escalation on the back of new BS-VI engines will dent consumer sentiments next year. "The ownership cost of BS-VI vehicles vis-a-vis BS-IV will be higher. The cost factor will be a big turn-off for consumers under the current market conditions," Grant Thornton India Partner Sridhar V. told IANS. Industry estimates show a price rise of 1-3 per cent for BS-VI petrol vehicles and 5-10 per cent for the diesel ones.

According to Rahul Mishra, Principal, A.T. Kearney: "Low consumer sentiment is expected to continue, however, an expected RBI rate cut coupled with festive season buying could give a boost to sales from September to November." "Going forward, the additional cost of new safety features and BS-VI engines will drive up prices. OEMs might not absorb the price escalation and bill it to consumers. This might keep the demand situation subdued from April to June next year."

Recently, all major OEMs consisting of passenger, commercial, two and three-wheeler manufacturers have reported a massive decline in domestic sales. "Shift to BS-VI in FY21, is expected to result in a price increase," said Kavan Mukhtyar, Partner and Leader - Automotive, PwC India. "This will adversely impact sales especially in mass-market vehicle segments which are very price-conscious."

Figures from the Society of Indian Automobile Manufacturers (SIAM) showed that domestic passenger car sales in June went down by 24.07 per cent to 139,628 units. The July figures are awaited. In the commercial vehicle segment, domestic sales were down by 12.27 per cent to 70,771 units last month. The overall sales of two-wheelers, which include scooters, motorcycles and mopeds, edged lower by 11.69 per cent to 1,649,477 units. In all, the total sales of the Indian automobile sector declined by 12.34 per cent during June 2019 to 1,997,952 units across segments and categories.

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