FOOTFALLS FELL BY 30%
Owner, Win Win Group, Bhopal, which runs Mahindra & Mahindra (M&M) and Renault dealerships
What? Over the past few months, Singh has had to close down eight of his 31 dealerships and lay off 300 staff as sales fell 10 per cent for M&M’s sportsutility vehicles and multi-utility vehicles. Footfalls have also plummeted, by about 30 per cent Why?
“Demonetisation and GST took a toll first, the second blow was the hike in vehicle registration charges from 8 per cent to 16 per cent for the Rs 20 lakh segment”
Singh hopes sales will pick up around Diwali and December. “We are holding the current stock, but for how long [can we afford to]? The present stock must be sold before April 1, 2020, when the BS VI norms kick in. Failing this, dealers will be forced to register vehicles in their own names and sell them as second hand”
an analyst with IHS Markit, estimates that sales should pick up by October. “Discounts will rise by the end of this year to pep up demand,” he says. Maruti’s Bhargava also has similar expectations. “Data shows that before the general elections, people get cautious. After the election, they go the other way,” he says. But Sanghi is not upbeat. “I do not see a correction happening in the near future,” he says.
There appear to be no quick-fix solutions. Unless the economy rebounds, auto sales will remain sluggish. But there are some historical lessons that could be applied. The sector saw a downturn in 2009 and again in 2014—both times, the government stepped in. In 2009, excise duties were lowered, spurring consumer spending,
Cars are almost in line with ‘sin products’ (those that are heavily taxed, like tobacco, to discourage sales) under GST. We have approached the government for a stimulus” SUGATO SEN, deputy director-general, SIAM “Changes are welcome, but what puts us in a tizzy is the speed at which regulations are changing. It becomes difficult to predict when to invest and in what technology” RAM VENKATARAMANI, president, ACMA
and in 2014, the government announced that under the Jawaharlal Urban Renewal Mission, state governments would purchase commercial vehicles, boosting the industry. TAX BREAKS: At present, small cars attract a cess of 1 per cent, small diesel cars attract a cess of 3 per cent, medium cars a cess of 18 per cent, luxury cars a cess of 20 per cent, and SUVs 22 per cent. This is over and above GST, at 28 per cent. Industry figures want GST reduced to 18 per cent, with M&M’s Goenka suggesting that the government remove the cess on small cars and keep a single rate of cess of 17 per cent for all others for the next four to six months. “It won’t lead to a major loss of revenue,” he says. “And if this revives the auto industry, the returns will far outweigh the cost.” Sugato Sen, deputy director general, SIAM, agrees: “Taxes on cars are almost in line with ‘sin products’ (those that are heavily taxed, like tobacco, to discourage sales) under GST. We have approached the government for a stimulus.”
EASE FINANCE: Jagdish Khattar, former managing director of Maruti Suzuki, says that the primary problem is financing—especially in the small-scale sector, which comprises as much as 70-80 per cent of the industry. Bhargava says he hopes the government and the RBI will re-examine the collateral policy for lending to NBFCs and improve access to affordable credit. Rate cuts have not been passed on to the consumers and banks continue to be wary of lending.
STAGGER POLICY ROLLOUTS: A general view in the industry is that the government should take a staggered approach to new regulations. Bajaj points out that shifting from conventional fuels to renewables cannot happen overnight. It requires preparation and investment by manufacturers, vendors and aftermarket service firms. Some say the situation is similar to what happened in the housing sector, where a combination of regulatory changes—RERA directives—and an economic slowdown have saddled the sector with poor sales and large stocks of unsold inventory.
ECONOMIC STIMULI: Consumption cannot rise without improved consumer confidence, which requires the economy to improve. Although India is expected to grow at 7 per cent this year, bleak economic news—the lack of jobs, the downsizing in several sectors and the NPA crisis—has dampened confidence. More policy interventions are required to boost business and consumer sentiment.
Offering some hope, Bhargava says that general economic conditions are favourable. Election results have increased optimism and stability, he says, adding, “confidence in Narendra Modi is high, and these are favourable factors”. That said, a quick government intervention is still necessary, as is a change of tack by manufacturers to adapt themselves to the new normal. But in the end, unless the economy rebounds, the crisis is likely to continue. ■
-with inputs from Rahul Noronha