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    Micro-Economics Assignment Decline in Sales in Automobile Sector

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    Aryan
    The document outlines several factors that have contributed to a decline in sales in the automobile sector in India, including a decrease in purchasing power due to rural distress, the NBFC liquidity crisis, increased vehicle prices and acquisition costs, and a shift to pre-owned vehicles. Domestic automobile sales fell 12% year-over-year in June 2019 due to weak consumer sentiment amid a slowing economy. Nearly 300 dealers have had to shut down operations due to crimped demand.

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    Micro-Economics Assignment Decline in Sales in Automobile Sector

    Uploaded by

    Aryan
    33 views3 pages
    The document outlines several factors that have contributed to a decline in sales in the automobile sector in India, including a decrease in purchasing power due to rural distress, the NBFC liquidity crisis, increased vehicle prices and acquisition costs, and a shift to pre-owned vehicles. Domestic automobile sales fell 12% year-over-year in June 2019 due to weak consumer sentiment amid a slowing economy. Nearly 300 dealers have had to shut down operations due to crimped demand.

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    The document outlines several factors that have contributed to a decline in sales in the automobile sector in India, including a decrease in purchasing power due to rural distress, the NBFC liquidity crisis, increased vehicle prices and acquisition costs, and a shift to pre-owned vehicles. Domestic automobile sales fell 12% year-over-year in June 2019 due to weak consumer sentiment amid a slowing economy. Nearly 300 dealers have had to shut down operations due to crimped demand.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    33 views3 pages

    Micro-Economics Assignment Decline in Sales in Automobile Sector

    Uploaded by

    Aryan
    The document outlines several factors that have contributed to a decline in sales in the automobile sector in India, including a decrease in purchasing power due to rural distress, the NBFC liquidity crisis, increased vehicle prices and acquisition costs, and a shift to pre-owned vehicles. Domestic automobile sales fell 12% year-over-year in June 2019 due to weak consumer sentiment amid a slowing economy. Nearly 300 dealers have had to shut down operations due to crimped demand.

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    © All Rights Reserved
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    of 3

    Nitin Ganesh

    19PGPM038

    Micro-economics Assignment
    Decline in sales in Automobile Sector
    The passenger vehicle segment reported the slowest growth that it’s ever recorded in the past 20
    years. Following are the factors which have contributed to such slowdown:

    1. Decrease in Purchasing Power of people:


    A drop in purchasing power, primarily in rural areas, has been caused by sustained rural
    distress. Automobile is a discretionary purchasing decision.
    According to Nikunj Sanghi, president of the Automotive Skill Development Council and
    past president of the Federation of Automotive Dealers Associations (FADA), "A person
    would need a vehicle, but he is prepared to wait. The purchasing power of people is in terrible
    shape."
    Rural distress continues primarily because of stagnation in rural wages. Falling food prices
    have meant that farmers are unable to even recover the cost of their produce.
    This is also evidenced by the slowdown in the FMCG segment.

    2. Technology disruption:

    Auto industry is witnessing a big technology disruption, in the form of new regulations next
    year. From April 2020, automobiles will have to be complaint with Bharat Stage VI, an
    emission control standard that will replace the existing Bharat Stage IV norms and bring India
    on par with advanced countries such as those in Europe and the US.

    3. NBFC Crisis:

    After the dramatic default by IL&FS last September, the NBFC sector has been faced with a
    major liquidity crunch. The overall exposure of mutual funds to financial sectors plummeted
    by approximately Rs 64,000 crore between July 2018 and June 2019. Since NBFCs are the
    major financiers of customers who do not approach banks, the liquidity crisis of the NBFC
    sector has affected auto sales to a large extent. The SBI report assigns a 30 percent weightage
    to this factor in explaining the auto slowdown.

    4. Decline in demand:

    According to the report, a significant decrease in the demand, especially in rural areas, for
    new automobiles is responsible for the degrowth of the auto industry. This factor, as per the
    report, is another reason behind the auto slowdown and has a weightage of 20 percent.
    5. Increased acquisition costs:

    Vehicle prices have seen an upward revision in 2019 and the trend is expected to continue in
    2021 due to various safety, insurance and emission norms related compliance costs. Higher
    insurance costs coupled with the introduction of the GST have increased acquisition costs by
    2-5 percent. This factor is 10 percent responsible for the slowdown, according to the report.

    6. New axle load norms:

    In July 2018, the government increased the official maximum load-carrying capacity of heavy
    vehicles by 20-25 percent with the aim of bringing down logistics costs. However, the
    decision adversely affected the sale of automobiles, particularly commercial vehicles and is
    believed to have a weightage of 10 percent in explaining the decline in the auto industry sales.

    7. Other factors:

    Slowdown in new car sales suggests that the demand is shifting towards a pre-owned car
    market because of significantly lower costs of second-hand vehicles as compared to the new
    ones. The pre-owned car market in India has been expanding considerably in the past few
    years and buying and selling of second-hand cars exceeded the sales of new cars in 2018-19.
    Further, the increased availability of automobile rentals promotes consumers to rent vehicles
    instead of buying them. Finally, the lack of a clear migration policy towards Electric Vehicles
    (EV) creates confusion among buyers, contributing onwards a reduction in auto sales.

    Domestic automobile industry's sales volume fell 12 per cent YoY in June 2019 on weak consumer
    sentiments due to the slowing economy amid delays in the onset of monsoons. With rising inventory
    levels at dealer level, most original equipment manufacturers continued to take production cut in June
    2019," India Ratings and Research said

    Crimped demand has led to nearly 300 dealers having to shut operations, according to the Federation
    of Automobile Dealers Associations.
    Exhibit 1:

    Sources:

    https://www.indiatoday.in/india-today-insight/story/auto-sales-down-rebound-1539077-2019-05-31

    CNBC

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