Weak Monsoon and Inventory Pile-up, Ongoing Sales Slowdown to Further Decelerate Indian Automobile Production
The automobile sector has been impacted the hardest among major manufacturing sectors due to a consumption slowdown and a weak monsoon might just accentuate this trend. Industry insiders opined that the slowdown is a culmination of high GST tax rates, farm distress, stagnant wages and liquidity constraints.
Representative Image. (Reuters)
With the ongoing sales slowdown showing little signs of abating, India's automobile industry might further decelerate production, leading to eventual job losses.
Apart from the slowdown, a weak Monsoon, inventory pile-up and stock management of BS-IV vehicles vis-a-vis BS-VI will hamper any production growth.
The automobile sector has been impacted the hardest among major manufacturing sectors due to a consumption slowdown and a weak Monsoon might just accentuate this trend.
Industry insiders opined that the slowdown is a culmination of high GST tax rates, farm distress, stagnant wages and liquidity constraints.
"We can expect a further reduction in production in the form of stoppages due to continuing degrowth in sales of passenger vehicles," Grant Thornton India Partner Sridhar V. told reporters.
"OEMs would have to rework their strategy appropriately to balance inventory build up of BS IV vehicles vis a vis BSVI vehicles considering this persistent slowdown. We cannot see the sentiments improving soon...."
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.
In the commercial vehicle segment, domestic sales were down by 12.27 per cent to 70,771 units last month.
Additionally, overall sales of two-wheelers, which includes scooters, motorcycles and mopeds, edged lower by 11.69 per cent to 1,649,477 units.
Consequently, 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.
The slowdown also led to manufacturing curtailment with the domestic passenger cars' production down 22.26 per cent to 169,594 units from 218,167 units.
Similarly, the commercial vehicle production was down by 23.39 per cent to 69,496 units last month. Overall two-wheelers' production edged lower by 11.70 per cent to 1,915,195 units.
Accordingly, the total production of the Indian automobile sector declined by 12.98 per cent during June 2019 to 2,336,138 units across segments and categories.
"The production levels for most categories are likely to remain subdued and may witness further reduction. Many dealerships are carrying more than planned days of inventory and also accruing interest charges on delayed receivables or working capital," Rahul Mishra, Principal, A.T. Kearney told IANS.
"Further, pressure will continue to rise on volume liquidation given the BS VI introduction and liquidation of BS IV stock. As a result, in the absence of a strong market, production may have to be cut down further."
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