Automakers see no revival in sales without cut in GST

The sales slump in automobile industry is unlikely to improve in September and October as the hopes of a rate cut in the next GST Council meeting fade.

The industry is severely impacted by weak consumer sentiment and postponement of purchase decisions on account of switchover to BS-VI technology by April 2020. However, the industry expects a marginal improvement in the sales this month owing to festive discounts being offered by many automobile companies. While the Ganesha festival did not bring enough positive movement in sales, the Onam festival this year was better compared to last year when the devastating floods in Kerala caused a huge drop in sales. The slowdown in automobile sales started since then, said N Raja, Deputy Managing Director, Toyota Kirloskar Motor Pvt Ltd.

According to Raja, the automobile industry is likely to see a 20% drop in 2019 calendar year compared to 2018. While Pawan Goenka, MD of M&M had openly called for reduction of transaction costs in car sale, sources in Maruti suggested that a GST cut would save the day for the sector.

"We can deal with the transition to BS-VI. But we need the support of the government. The least they can do is to reduce the GST on cars," an industry source said.

Analysts tracking the passenger market say that it is too difficult to predict anything for the industry in the current scenario. “Festive sales are expected to be lower in the festive season than last year. If the government doesn’t intervene, FY20 could be a complete wash out for the industry. Also, customers are waiting for stock clearance discounts on BS-IV vehicles,” Motilal Oswal Financial Services (MOFSL) said.

Customers appear confused about how changes/regulations will take shape in the future. Also, buying decisions are postponed due to expectations of a GST cut. Inquiries have increased marginally but conversions are still weak. Inventory levels are high at 35-45 days. MSIL’s XL6 initial response has been lukewarm due to high competition at that price point. While Hyundai's Venue is off to a good start, Grand i10 Nios has begun on a weak note, MOFSL said.

“The sentiment with consumers continues to be muted with the inauspicious period ahead of Dasara festival (Pitru paksha) lasting till September 28. We have only two good days this month on 29 and 30 and we expect some bookings to happen on those days,” Raja said.

Automakers and component manufacturers have been demanding cut in GST rates on automobiles to 18% from 28% to help revive consumer demand and aid the revival of the sector. The GST Council is meeting on September 20 in Goa. The Council, according to sources, will focus more on increasing GST revenues in the wake of only 6% year-on-year rise in the collections during the first five months of the current fiscal.

Meanwhile, Maruti Suzuki sources suggest that since company has already been making progress on BS-VI it doesn't see much headwinds because of that. MSIL has seven models running on BS-VI right now including Ignis, Ciaz, XL6, Ertiga, Baleno, and Alto K10.

“Any big improvement in sales is unlikely to happen this year. We expect things to improve only next year when the industry migrates to BS-VI emission technology,” Raja added.

Toyota has already started selling a BS-VI-compliant vehicle Glanza manufactured by Suzuki at its Gujarat facility. This is also the first product under the collaboration between Toyota and Suzuki. “During the festival, we are launching Datsun Go and Go Plus CVT to cater to the growing demand for the automatic cars. In addition, we are maximising the value offers with introduction of special financing offers on all our products,” said Rakesh Srivastava, Managing Director, Nissan India.