Auto industry hoping for revival in 2020

Auto industry hoping for revival in 2020

Cars at the Maruti Suzuki plant in Manesar. Picture credit: Reuters

It has been a trying 2019 for the automobile industry. And it is seen as one of the worst slowdowns for the auto sector in the India in a long time.

The slowdown has lasted for months and though the hope is that 2020 will be better, the general expectation is that it will be in the first quarter or so when the industry sees some growth.

“Indian automakers are all set to transition to Bharat Stage 6 (BS6) norms from Apr 2020. After operating in a tough environment over the last 15 months, the auto industry now faces the last hurdle of BS6 transition, post which it will likely be ‘business as usual’ from 2HFY21, in our view,” said a report by Motilal Oswal Institutional Equities.

Another report by Motilal Oswal said: “Interactions with leading industry channel partners indicate positive demand trends in passenger vehicles but weakness in two-wheelers, commercial vehicles and tractors.

“Compared to Dec 2018, wholesales are likely to remain weak across OEMs (except Maruti Suzuki and Bajaj Auto).”

According to industry experts, several factors have led to this slowdown. Mayank Pareek (President, Passenger Cars, Tata Motors) had told Deccan Herald: “At the beginning of the year, there were reports that the GST will come down. That created confusion and the customer put off buying a car because it is not a vital purchase. This continued till October.

“The second issue has been the upcoming switch from BS4 to BS6 emission norms. Earlier, there was confusion if a BS4 vehicle will continue to remain registered after purchase. The clarification for this was in September and it came too late.

“The last reason, according to me, is finance availability. Liquidity is there theoretically but giving finance to the customer has come down. Earlier, finance up to 92 per cent was given but it has now fallen to about 68 per cent. People have changed from exuberance to caution,” he added.

The buzzword in the Indian auto industry is the transition to BS6. With no clarity on how well BS4 vehicles will run with BS6 fuels and vice-versa till the new, cleaner fuels are sold, a lot of buyers are confused about what to buy.

With BS6 emission norms due to come into effect on April 1, 2020, automakers are busy rolling out new models even as they are trying hard to clear existing BS4 stocks. Some companies have had non-working days, while others reduced production of models that were in ample stock.

There is a wide range of BS6 cars across categories from Maruti Suzuki, Tata, Hyundai, Kia, Toyota, Jeep, Mercedes-Benz etc., while Honda, Hero MotoCorp, TVS and others have already launched BS6 two-wheelers.

Even in the scenario that one can buy a BS4 car at a good discount now, the question mark of how well it will work with BS6 fuel remains. Moreover, there is also the question of BS6 vehicles costing substantially higher, more so with diesel variants. Again, due to this, there is apprehension about a revival in the industry as a car is a non-essential commodity.

Adding to the discussion is the push towards electric vehicles. Clearly, India is not ready for EVs due to the dismal charging infrastructure currently and high cost of purchase. Therefore, it is going to be quite some time before we move away from internal combustion engines. Hyundai, MG Motor, Tata, Mahindra have already announced or launched EVs and there is expectation that there will more launches in 2020 but purchase cost is rather high.

There has been expectation that the government will introduce a scrappage policy to boost sales. The idea was to mainly target older and highly-polluting commercial vehicles. However, the policy is yet to be announced.

Quite clearly, there is not much to cheer about in the automotive sector at the moment. There is much hope that things will improve in 2020.

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