Gloomy outlook for auto industry

Recent data released by the Society of Indian Automobile Manufacturers (SIAM), shows the sale of passenger vehicles in the year ended 31 March 2019 grew at just 2.7 per cent to 3.37 million units, making it the worst performance in the last five years. Scooter sales at 6.7 million units actually fell during the year by 0.27 per cent, the first fall registered since 2006.

The persisting weak demand since last summer reflected in March 2019 car registrations falling 8 per cent below the corresponding month in 2018. The only silver lining was the rise in commercial vehicle sales by 17.55 per cent, which in FY2019 touched one million units for the first time. 

The gloomy weather for the industry is expected to continue. Maruti Suzuki, India’s largest car-maker which holds nearly 55 per cent of the passenger vehicle market, has announced a 20 per cent cutback in production in March. Seeing the continuing poor offtake, the industry forecast for the coming year has been trimmed down to just 3-5 per cent growth for FY2020. Poor sales is a result of the persisting high fuel prices combined with a hike of passenger vehicle prices across the board. In urban areas, a further damper has been the surge in insurance cost, which has made vehicles 10 per cent costlier. 

The data is a matter of concern as it reflects a continuing and underlying weakness of the Indian economy. Auto sales are an important signal for gauging consumer demand and when two-wheeler sales—the mass consumption travel machine especially for rural areas—shows a growth of just 4.8 per cent, it smells trouble. So far annual sales of cars and two-wheeler had been averaging 8 and 10 per cent, respectively. At a macro level, people have become cautious or just don’t have that surplus to invest.

Vehicle ownership is poor in India—just 30 million cars and 170 million two-wheelers for a population of over 1.2 billion. Perhaps the best option is a two-pronged approach by government: easier credit options, while building an efficient public transportation system.