All you need to know about the automobile sector slowdown
Here is the Latest Automobile Industry News on Why Auto industry going down in India.
MyNewCar.in has listed few possibilites that has brought impact to decrease in Car Sales in the Month of August 2019.
The Indian automotive sector has grown rapidly over the last decade and more and more companies are looking to invest in this sector. With hitting highest sales for quite some time, the automobile industry was doing well and may have considered this a stable growth. Indian economy is a cycle, to get to a stable point all of its sectors has to work in harmony. It just takes one variable to disrupt the cycle. Downfall or rise of one sector will affect other sectors as well; crumbling or advancing a country’s economy and in turn affecting the world.
With the rise in demand, Indian automobile sectors started with a faster production rate. This worked out well for few years till June of this year when the sales of cars plummeted. The automobile sectors took its worst hit in August where car sales were all time low. August was the worst month for the automobile industry since the sales dropped to its lowest since 1997-98.
There are a lot of factors that affected the slowdown of automobile sectors, from ongoing NBFC crisis to the rollout of BSIV compliant vehicles, all of these affected the sector all at once. Here is a quick review of what really caused the slowdown of the automobile sector:
The NBFC Crisis:
Non-banking financial companies (NBFC) came across with a severe liquidity crunch. Simply put, NBFC are the companies that loan a certain amount to the people with low credit scores or the defaulters. They are even the creditors in the sectors where banks usually don’t prefer to lend. This led to a huge cash crunch ie. The NBFC basically ran out of money. Currently the NBFC does not have enough to lend people or pay back the banks.
To start why this happened, the NBFC’s flawed business model is the one to blame. NBFC borrows money from banks and markets to lend. If they borrow the money for several months and lend it for a few years, they won't be able to pay back unless they raise a fresh loan or renew the contract. Basically, they raise short term funds for long term returns. If basic cash flow remains constant, the cycle is not broken. However, with the demonetization, the cash flow in the market increased drastically with excess money deposited and invested in mutual funds, which gave the banks as well as NBFC the ability to borrow as well as lend more.
However, since its lack of a proper portfolio and background checks of its clientele, they were able to lend double of what the banks were lending. This led to disruption in the cashflow and NBFC were not able to return the funds they opted as a short term loan.
Currently the NBFC has no more money to lend or to pay back. The slowdown in credit affected the real estate and infrastructure, in turn affecting the automobile sector. You have to note here that NBFC does provide financial solution to individual buyers. With the NBFC crisis, the sales took a huge hit since a lot of rural creditors depend on NBFC for funds. This led to a huge decline in the sales of utility vehicles and other hatch which would find a good market in rural areas otherwise.
Rajiv bajaj, the managing director of bajaj motors has blamed overproduction for the current auto industry slowdown. He added that no industry in this world keeps growing forever and will become stagnant over a period of time. What the auto industry may have failed to realize that the demand for automobiles will soon come to an end and the industry will need to be corrected. Since the growth in auto industry was stable for so many years, the companies may have overstocked in order to fulfill the demand. With a lot of factors currently affecting the financial market, the automobile industry is failing miserably to get its stocks out. Bajaj said that as long as the manufacturers have raised their markets internationally, the slowdown is expected to have less impact on the manufacturers.
The currently sold vehicles in the market are based on BSIV emission norms which has much less concern for its environment. With the rise in the air pollution due to vehicular emission, the government of india came up with sophisticated emission norms that will in turn reduce the pollution caused by vehicles. The bs6 compliant vehicles will reduce emissions by 70% for diesel and 25% for petrol. This affected the diesel car market in the worst way and now a lot of manufacturers are left with the old stock that the people are morally refraining from.
The supreme court has ruled that the sale of all BSIV compliant cars will be banned from april 2020 and only new and improved BSVI compliant vehicles will be given permissions. The court also added that the manufacturers need to get rid of its old stock by april 2020 and there won't be any extensions in the matter. The BSIV cars are still allowed on the road even after april 2020 and only the sale will be banned.
The confusion in the matter has led to a lot of misunderstanding, at the same time, the rise in awareness of environmental issues amongst youth may also lead them to wait for the BS6 rollout and even opting for better electrical vehicles that are scheduled to launch in 2020.
Growth in Pre-Owned Vehicle Market:
The Indian population is practical. They opt for better deals and go for cars with better resale value. The second hand car market has increased a lot in the last five years with a heavy rise in last 2 years. More and more consumers are getting attracted to the pre-owned car market because of the good conditions and cheaper rates of previously owned corporate vehicles. The passenger vehicles makes most of this market share.
The Environmental Factors:
What most reports failed to address is that environment plays an important role in overall growth of the country. Starting july, the country has faced with its worst type of floods all over, especially affecting the rural areas. The floods has destroyed thousands of livelihoods and has put a huge dent in the country's economy. As the margin of destruction grows, the consumer's ability to spend becomes less. The consumer will prioritize its expenditure and it could be one of the reasons why the sales have affected the rural areas the most.
The automobile sector has been hit dearly, making its worst sales in the last couple of decades. August 2019 is also said to be the worst for all auto manufacturers with 18% less sales than the previous year. Starting from july, the automobile sector has faced exponential decline in sales making August a nightmare. This led the automobile sector to imply what are commonly known as non-working days.
What are non-working days?
Because of overstocking and decline in sales, the automakers all around the country has announced non-working days which essentially mean a holiday without pay. Most of the workers working in such industry are contractual i.e., they receive their wages per day basis. With announcing the non-working days and cutting productions, the wages are reduced drastically. At the same time, a lot of permanent workers receiving a fixed salary have also been laid off.
The important companies in automotive industry like ashok layland, maruti Suzuki and tata motors has increasingly raised the number of non-working days in their production facilities. With finished products already on hand, the manufacturers are unwilling to keep the production facility running until it gets rid of all its older stock. Due to this, the automobile industry has lost about 3 lakhs of jobs and is expected to lay off more.
Rise in BS6cost:
The aftermath also includes a consistent rise in the bs6 compliant vehicle as well as fuel. The bs6 version has more sophisticated engine. To ensure the emission norms are met, the bs6 compliant fuel will also have 10 ppm of sulfur (previously 50ppm). This will obviously reduce the emission due to vehicles but the composition has lead the refineries to invest more to refine the fuel that matches its composition. With that being said, fuel prices are already high and with the more sophisticated bs6 fuel, the costs are expected to rise even more.
The bs6 cars uses a very sophisticated and mature form of the current engines used in bs4 cars. With the add ons to meet the emission laws, the cost of vehicles are expected to rise by 13%. It is estimated that the bs6 compliant vehicle will be rs. 1 lakh costlier than its diesel bs4 counterpart and 40,000-50,000 for its petrol version. Due to this slowdown in growth and new emission norms, the cars are expected to cost more in the future.
Most people believe the market crash is temporary and will revive within few months or when the bs6 compliant vehicles start rolling. Since the auto crash is not caused due to international factors, the issue is expected to be fixed internally soon.
There is good news amongst all this:
Since the manufacturers need to get rid of its old stock by april, they are providing better deals on cars in the coming festive season. With the best ever discounts and great deals, you can avail the car of your dreams for a much lesser cost. You may also able to get better services as well as some sweet deals these coming months on the bs4 compliant vehicles. And since they will be allowed on the road, it is best to grab the opportunity while it lasts.
Visit mynewcar.in for more information and better deals on bs4 compliant vehicles. Now you can search, compare, buy and get daily updates on your favorite car. We also provide with the ‘advice’ column that is a set of articles mainly designed to answer the day to day car related questions of a customer.
From buying advice to new car launches, latest offers and automobile news, mynewcar.in got you covered for all. Not just that, we also provides you with car maintenance tips and also with car driving tips which makes caring for your car much easier.
What do you think of the current market crash? How far do you think it will affect the automobile industry? Would you buy a bs4 vehicle or would you wait for bs6? Do let us know what you think in the comments below.