Auto sector shows slow recovery, but long road ahead

‘Most buyers don’t want to invest in a vehicle, given the fragile condition of the Indian economy’.

 

New Delhi: The automobile sector, one of the hardest hit sectors due to the Covid-19 pandemic, has shown marginal recovery in May, but industry experts say it is a long road ahead.

After a month of no sales for automobile companies like Maruti and Hyundai, May saw some units being sold though many of the buyers are not willing to currently invest in a vehicle, given the fragile condition of the Indian economy.

According to India’s biggest car manufacturer Maruti Suzuki, the company was able to sell a little over 18,500 units in May when the lockdown across the country was partially lifted. Another auto giant Hyundai Motors said in a statement earlier this month that the company has sold 6,883 units of vehicles in India’s domestic market in May.

While some auto companies have started selling in smaller numbers, stakeholders in the auto sector say that sales have clearly dropped sharply compared to financial year 2019-20. According to Mahindra and Mahindra, the company has seen a massive decline of about 79% in their sales.

In a report published recently, the company said that they have sold just 9,560 units in May 2020 against 45,421 units in 2019.  The story of the fall of sales is similar with almost all the major auto companies in India, including Toyota, MG Motors and Honda cars that have registered a fall in sales between 25-30% against last year. According to auto sector industry insiders, the industry had already been witnessing a sharp decline in terms of sales since the last one year, and the Covid-19 pandemic has made the path to recovery much tougher.

The Ministry of Finance had announced a Rs 20 lakh crore package for the revival of the economy, but auto industry stakeholders say that no direct support to the already ailing industry was provided by the government.

Rajesh Menon, Director General, SIAM (Society for Indian Automobile Manufacturers), told The Sunday Guardian, “The economic stimulus package of Rs 20 Lakh crore announced by the Central government essentially emphasised on the revival of MSMEs, NBFCs and the agriculture sector. However, no direct support was extended to the auto sector, which is witnessing an unprecedented slowdown due to the Covid-19 crisis, with sales down to minus 18% vis-à-vis FY19. Currently, it is important for the government to boost demand, defer some of the upcoming regulations, provide employment support and necessary financial aids.”

Menon further added that the Indian automobile sector had already been facing strong headwinds even before the pandemic struck; Covid-19 has just aggravated the situation. Unless immediate steps are taken, the damage could spiral out of control, he said. The auto sector is one of the prime contributors to India’s GDP, hence government intervention is a must, he added.

“SIAM had several discussions with the government and recommendations were made for demand stimulus which included reduction in base GST rates from 28% to 18% for a limited period and an incentive-based vehicle scrappage policy, which would have made the revival quick for the moribund sector. It is also imperative to support the dealers in these trying times, improving their liquidity and including them under the MSME Act by changing its definition,” Menon said.

SIAM predicts a de-growth of the automobile sector in the range of (-22)% to (-35)% in various industry segments in the year 2021, if the overall Indian GDP growth is at 0-1%.  “While auto manufacturers are leaving no stones unturned to boost demand via easy financing options, affordable EMIs with long term loans, the consumer sentiment continues to be very low and this will have a direct impact on demand. However, as mentioned earlier, the onus is on the government to lift consumer sentiments. SIAM had suggested reducing base GST rates from 28% to 18% for a limited period and an incentive-based vehicle scrappage policy, which would go a long way in kick-starting the industry.”