Auto sector worried as slowdown worsens

A further decline in automobile sales in August despite recent liquidity enhancement measures announced by the government has left the sector worried.

The industry has now reiterated its demand for reduction of Goods and Services Tax (GST) from 28% to 18% to create demand in the sluggish market.

The downtrend in the auto industry intensified in August 2019, led by economic slowdown, resulting in weak retail sales and inventory correction by original equipment manufacturers (OEMs) in August 2019, analysts said.

“As per our estimate, passenger vehicles (PV) and two-wheeler industry volumes declined by double digits in August 2019,” analysts at Kotak Institutional Equity said.

‘30% drop in PV sales’

Rajan Wadhera, president, Society of Indian Automobile Manufacturers (SIAM), said that the sales report for the month of August 2019 presented a dismal picture with over 30% erosion in PV sales. Commercial vehicle (CV) and two-wheeler sales were also significantly negative, indicating that the market had still not responded to the various measures initiated by the Finance Minister last month, he said in a statement.

“The series of announcements on credit availability and reducing the cost of credit that were made do not seem to have percolated down to the NBFCs which support the bulk of finance for the automotive industry. Consumer sentiment also continues to be low and there is clearly a trust deficit in lending money to the dealers,” he added.

He said all this while, the industry had pulled out all stops in offering attractive deals and discounts to the consumers.

“However, the ability of the industry to provide large discounts is limited and this only highlights the need for government to consider reducing the GST rates from 28% to 18% which would significantly reduce the cost of vehicles and, in turn, create demand,” he added.

Crisil Ratings has estimated that tractor makers would witness 5-7% sales conraction this fiscal. “Crisil believes weak growth in rural income, moderation in rural infrastructure spending, higher channel inventory, and the effect of a high base will lead to de-growth in tractor sales volume by 5-7% this fiscal, from an all-time high of 8.78 lakh units in fiscal 2019,” it said.

Meanwhile, automobile dealers’ body FADA said on Tuesday that recent measures by the Centre to help the auto industry overcome the ongoing slowdown were yet to take effect at the ground level and uncertainty over GST reduction was making customers postpone purchases.

(With PTI inputs)

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Printable version | Sep 20, 2020 8:45:22 AM |

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