Revving up India’s auto sector

According to data released by the Society of Indian Automobile Manufacturers (SIAM), passenger vehicle sales plunged 31.57% year-on-year to 196,524 units in August 2019. Passenger car sales fell 41.09% to 115,957 units. In the months since, news have not been positive; despite a short uptick during Diwali. Indian automobile sales look bleak for the whole of the financial year. Vehicle makers are trying to manage the downturn by pushing out inventory, slowing down production and postponing launch of new models. 

What has caused this slump? There are several contributing factors. 

1. Financial crisis and weakening balance sheets of NBFCs. Two wheeler sales in the country was charged by NBFCs operating in small towns and rural areas. The economic downturn and RBI’s strict guidelines have made it difficult for NBFCs to raise funds. Many NBFCs are under the scanner for lending malpractices. Some of them like ILFS have shut down due to lapses in lending and corporate governance. It seems the government was always looking the other way while murky waters have been rushing under the bridge. If NBFCs were growing in excess of 15 per cent, now it’s at 6-8 per cent. These NBFCs could miss asset-growth estimates by 3-5 per cent as the slowdown is more prominent in CVs (commercial vehicles) and tractors. Automobile manufacturers should tie up with banks directly to ensure finance for customers.
2. Ownership models in the PV segment have to change. Sell and buy back models where the owner pays instalments for a limited period and the automobile is sold off in the second hand market, may be a feasible model. Automobile companies can also tie up with fleet owners and aggregators like Ola and Uber to promote a consolidated buy-back and maintenance model, for a part of the operating revenue should also be explored. 
3. The policy deadlock. This is another hurdle along the way. The government is flip-flopping on the environment friendly advantages of electric cars. The truth is that no company in the world has ever made money selling electric vehicles. Apart from city buses, automobile companies should refrain from trying to build fully electric vehicles. It has been seven decades since independence and we have not even been able to pave our roads or erect streetlights even on highways. Electrifying cars is a distant day dream for any dispensation in power, the world over. SIAM should clarify this position with the government. Over ambition is a poison we should avoid in this day of crisis.
4. How long can vehicles be used? Most middle class households are waiting for policy clarity. How long can you use your car if you buy it? If there is a cap, what will that be? Buyers need to know what their cars will fetch at the end of the use cycle. How many years one drives a car is a personal choice. But people feel more secure in buying automobiles where there is a clarity on the entry and exit costs, even if these are approximate figures. I would certainly not buy a car that would become un-drivable and worthless because suddenly a bureaucrat or a judge of the high court feels a whim to clean up the air. The government needs to give out an assurance that cars can be driven for a certain number of years.
5. Reduce and rationalise the cost of ownership. For no specific rhyme or reason, the ownership cost cars has spiralled out of control. Most of this is due to opportunistic pricing strategies of the automobile companies. They have to rework their costs. The idea is not to subsidise the industry, but customers have been given a raw deal. Some brands charge exorbitant prices for spares and service. 
6. Look for more technological innovations and plug and play devices. Cars are an aspirational buy. Buyers look at future revenue to justify the high EMIs. To make cars more attractive not the younger generation, manufacturers have to look at connectivity, adaptability and device compatibility between gadgets. In the 21st century, a connected and networked car is the need of the hour. 
7. Millennials love cars. Generation Y is not averse to buying them. There is factor of overcrowding in India’s mega metros. But on the whole, cars are safer modes of transportation and people still love them.
8. The metropolitan chaos. India’s problems with overcrowded roads were overcome by the West in the 1950s. We just need to look at case studies from abroad and how cities and nations have managed to grow with their cars. Automobile penetration in the advanced world is several times India’s. 

All these does not guarantee a quick rebound. Only two things can save the automobile industry from imminent disaster. The first is a quick shift of gear to the BS VI regime and the other is to wait out the policy murk to settle. That would at least be a quarter away. The world is facing a triple dip recession for the first time and we need innovative solutions that will push down the gas pedals again.