Deepak Yadav

D-14 |PRN: 20020441077

SLOWDOWN IN THE
AUTOMOBILE SECTOR
Trends till March 2019

TRENDS AFTER MARCH 2019

In July 2019, the sale of vehicles across categories in the country slumped 18.71% to about 18.25 lakh units,
down from about 22.45 lakh units, a year ago in the same month. This has been the steepest fall in nearly 19
years. This data, by the Society of Indian Automobile Manufacturers (SIAM), gives out wholesale figures i.e.
the number of vehicles dispatched to dealers by vehicle manufacturers. The passenger vehicle segment, which
comprises cars, utility vehicles and vans, has been one of the worst performing segments, registering its highest
drop in sales since December 2000: almost 31%, to a little over two lakh units from nearly 2.91 lakh units in
July 2018. This was also the ninth straight drop in monthly passenger vehicle sales. In fact, barring a low single
digit uptick in October 2018, segment sales have been falling for the past year. With the industry failing to
arrest the downturn that started almost a year ago, despite deep discounts and new model launches, it has been
forced to undertake production cuts. This has also led to the trimming of over 2.15 lakh jobs in the sector.

REASONS FOR SLOWDOWN IN AUTOMOBILE SECTOR

1. Harder To Get Loans

*All the graphs and data are taken from SIAM

 Deepak Yadav
D-14 |PRN: 20020441077

In the current economic environment, banks have become more strict about giving out loans, favouring only
those individuals with high CIBIL scores. Transunion CIBIL tracks and monitors the loan repayment histories
of financial consumers in India and is a trusted establishment used by banks and financial institutions to assess a
person’s credit worthiness.

Since people with lower CIBIL scores are not able to get loans as
easily, they are not able to purchase high value assets, such as cars.

Banks are also being stringent in lending money to dealers to

capitalize their inventory. Often, the production numbers for car
manufacturers are helped by their dealerships placing orders to stock
up for potential customers. So, if dealers cannot get loans as easily,
then they too will order fewer units.

2. Confusion around BS6 emission standards

Bharat Stage 6, more commonly referred to as BS6, is a
standard of emission norms set by the government of
India. These norms apply to both fuel and the engine.

By April 2020, the BS6 emission norms will come into

effect and all car manufacturers will have to upgrade their
engine offerings accordingly. Not all carmakers have
clarified their position regarding the upcoming shift and
how it will affect their product lineup that is offered to
customers. As a result, certain buyers are delaying their
new car purchase until there are more details available
regarding BS6-compliant model choices.

Availability of BS6 fuel across the country is another

uncertainty of the public.

3. Uncertainty of Diesel in the BS6 era

Whether carmakers upgrade existing engines to meet the upcoming BS6 emission norms or make new ones, it is
a big investment. The extra cost will undoubtedly be borne by the customers as well in the prices of the final
product - the car.

Upgrading petrol engines is relatively cheaper thanks to the more refined nature of the fuel itself. For instance,
Maruti updated majority of its petrol engines to be BS6
compliant while keeping the price bump to just under Rs 30,000.

However, there is a huge cost in making diesel engines

compliant to BS6 standards with an expected jump of at least a
lakh rupees for all diesel-powered variants of different cars.
Diesel cars already command a significant premium over their
naturally-aspirated petrol engine variants.

*All the graphs and data are taken from SIAM

 Deepak Yadav
D-14 |PRN: 20020441077

Smaller, affordable cars which use smaller, more fuel efficient

diesel engines amount for a considerable volume of total car sales.
If these get too pricey relative to the petrol variants, fewer people
are likely to opt for it. As a result, not all small diesel engines will
continue to be offered in the BS6-era.

This uncertainty from carmakers has also resulted in hesitation

from those who would likely buy a new diesel-powered car.

4. Waiting for attractive deals closer to BS6

implementation
The above mentioned points have also led to some new car buyers to wait for
the BS6 deadline to draw closer in order to get the best possible deals.
Dealerships and carmakers are expected to be scrambling to get rid of new
car inventory with BS4 engines while they can still get registered. In that
rush, buyers are likely to be offered ridiculous discounts to get those models
off their hands.

A similar situation already happened in 2017 when the sale of BS3 vehicles was banned. Certain manufacturers,
particularly from the two-wheeler industry, were still hoping for an extension on the deadline for the sale of
BS3 models. However, when the decision and date were finalised, manufacturers offered great discounts to get
rid of their BS3 inventory.

5. The UBER-OLA Factor

Taxis have been around for many decades. However, they
were always quite expensive, hard to find and taxi drivers
were infamous for their unreliable services. Today, thanks to
the boon of the smartphone and cheap internet, we have
convenient cab services from apps like Uber and Ola.

In fact, in the last year or so, these two apps have gone
beyond just booking a cab; they even allow you to book auto-rickshaws and motorbikes for shorter distances.
With the added convenience of online fare payments, the use of these apps for smaller commutes seems a more
favourable prospect than buying your own car and the hassles that come with it.

6. Big Cities Are Too Crowded

Speaking of the hassles of owning a car, the first one to mind
is that of being stuck in traffic. A large volume of car sales is
driven by young, upcoming professionals with growing
incomes and fewer liabilities. But even if

you have the money to buy a car, you will likely spend a lot of
your time driving it in congested traffic and/ or looking for a
suitable parking space.

*All the graphs and data are taken from SIAM

 Deepak Yadav
D-14 |PRN: 20020441077

The stress of having your car scratched by a careless delivery-rider or auto rickshaw or cabbie in traffic or in a
tight parking spot is no small matter. A regular commute with plenty of traffic takes up a lot of time and energy
as well. Time and energy that could be spent working or resting in the back of an Uber/Ola cab during your
commute.

7. Too many back-to- back changes in the industry

When there is too much going on in terms of changes and uncertainties
regarding regulations and government policy, it is almost common sense
to sit back and not act until things have settled down. The car industry
today is in a similar state.

In the last year or so, there have been numerous changes enforced by new
regulations with more changes on the way. From mandatory safety features for all new cars to increasing the
road tax, rising insurance costs to upcoming emission norms. Each of these types of changes, even if necessary,
tend to lead to an increase in prices which deters new buyers in the mass market.

8. The Electrification Equation

Even the government’s rhetoric surrounding electric mobility and electric vehicles leaves many uncertainties for
both carmaker and buyers about what to invest in and more critically, when to invest.

Affordable EVs with sufficient range are a must for the electric
mobility shift to become reality. However, this goal is harder than it
seems as the current battery technology is not at that stage yet and
neither is their charging infrastructure.

Promises made and goals set are not enough for the breakthrough that
is required to make e-mobility a mass market option in India. The
production and development of electric powertrains, battery tech and
charging infrastructure is still in its early stages and will likely take another 5 to 8 years before mass EV
adoption begins. Recently, the government has reduced GST rates for EVs in India. However, its effectiveness
in the EV-push has not been as confidence inspiring as some may have hoped, largely due to the surrounding
factors mentioned above.

9. Demonetization and BS-III Vehicles Ban

Demonetization impacted the Automobile industry
significantly. The domestic CV sales contracted by a sharp
11.6% in November 2016. Passenger Vehicle (PV) industry
slowed down during Nov-16. The two wheeler and three
wheeler segments also took a significant hit during the month of November. Car sales were at their lowest in the
last 16 years in the month of December, 2016. The overall dip in the sale of automobiles has been recorded at
19 per cent to 12.21 lakh units in December 2016. Not just the sale of automobiles, their overall production also
went down by 22 per cent as carmakers scrambled to cut production in the face of falling demand. The month of
December 2016 saw a dip in the production of two-wheelers by 25 per cent and the production of commercial

*All the graphs and data are taken from SIAM

 Deepak Yadav
D-14 |PRN: 20020441077

vehicles by 20 per cent. Overall vehicle sales in December 2016 were down by 18.66 percent compared to a
5.48 percent drop in November 2016.

As per the CRISIL report when the ruling came, the two wheeler inventory risk was at 670,000 units,
amounting to 3,800 Crore. Among the two-
wheeler players, Hero MotoCorp, TVS Motors
and Honda Motorcycles and Scooters, were
found to be with large pile of BS III bikes.
According to one brokerage house tracking the
automobile industry, actual vehicle population
affected by the ban is a mere 8,24,278 out of
238,56,956 produced between April 2016 and
February 2017.

10. Corona Virus

PwC has warned
SIAM of steep fall
in sales in FY21-
18 per cent for two wheelers, 12 per cent for passenger cars and 21 per cent in the
case of commercial vehicles.

It points out that the commercial vehicles segment is already carrying excess
capacity (GST impact and lower axle lading movement of goods due to the weak
economy). With logistics disruption likely to continue in hot zones and customers
in no mood to invest, this sector will show a delayed recovery, said PwC.

PWC also predicted that there will be

a sharp downgrading by buyers –
consumers who buy passenger cars or
two wheelers will go one segment
lower. But one good thing it said is
that online sales will now grow across
the auto sector. Also, rural market
recovery will be slower than urban.
This will have repercussions on sale
of two wheelers.

GROUP OPINION ( isme sabka cover ho jayega bus GST wala conclusion add kardo)

*All the graphs and data are taken from SIAM

 Deepak Yadav
D-14 |PRN: 20020441077

COVID-19 will impact all stakeholders in the value chain who will experience both short and medium term
impact. This could range from shortage of raw material, shifting of production to other countries, liquidity
crunch to delays in availability of models, deferred launches and shrinkage in consumer demand.

SHORT TERM SHORT TERM SHORT TERM SHORT TERM

 Shortage in component  Decline in production,  Decline in customers foot  Rise in online
parts- China’s production especially BS6 due to falls. platforms & increase
slowly coming up but supply chain/ labour  Liquidity crunch due to in traffic ( e.g.
supply chain disruptions disruptions because of blocked working capital in CarDekho, CarWale in
remain. lockdowns. BS4 inventory & loan India)
 Reallocation of production  Delayed availability of tightening.  Even as use of online
parts to indian suppliers BS6, post testing and  Drop in automotive demand plaforms increases,
due to bottlenecks in gobal certification. due to price increase for BS6 actual sales could drop
supply chain.  Potential decline in transition, slowing economy, due to low consumer
 Possible decrease in export planned BS4 sales as it slow loan availability & lower confidence.
orders due to shut down in was expected to pick up consumer confidence.  Decrease in Ola/Uber
Europe/USA. in March. demand due to
 Possible Liquidity crunch lockdown & work
for suppliers due to from home.
increased inventory( No
production by OEMs)
MEDIUM TERM MEDIUM TERM MEDIUM TERM MEDIUM TERM
 Possible increase in Make  Potential extended  Potential sustained drop in  Potential for enduring
in India as global & Indian waiting times for new demand due to drop in shift to online
supply chain mitigate models (incl. BS6 consumer confidence, shifting purchasing channels
supply risks versions) due to from a ‘supply’ problem to a due to this impetus.
 Possible decrease in disruptions in ‘demand’ problem.  Potential for reduced
exports as global players productions.  Possible spike in consumer cab demand due to
may diversify supply chain.  Increase in demand for demand due to social shift in employer’s
spares due to pent up distancing ( personal, shared behaviour for work
demand during lockdown. & public transport mobility) from home policies
 Possible shortage of  Surge in demand for spares etc.
temporary labor because and services due to pent up
of people moving to demand during lockdown.
hometown.

*All the graphs and data are taken from SIAM