December 6, 2024

The Indian automobile industry is the fourth-largest in the world, with an annual revenue of $100 billion and employing around 32 million individuals. The two-wheeler market in India is the biggest worldwide. India has also been named the world’s largest tractor manufacturer as well as the eighth-largest commercial vehicle manufacturer in the world.

The auto industry is currently contributing approximately 50 percent of the manufacturing gross national output (GDP) within India, 26 percent of the overall GDP, and 7.1 percent of the total GDP, a rise from 2.7 percent in 1992-93. The sector is responsible for about 13 percent of excise revenues towards the federal government.

The total investment in this industry amounts to around $40 billion in the last ten years. The decade 2001-2010 saw an annual growth of by 15.67 percent with 10 percent exports. The annual increase in exports was 23 percent between 2000 and 2015, thanks to constant government assistance.

The automotive industry comprises four-wheelers, two-wheelers, commercial vehicles, and passenger vehicles. In the year 2018-19, 4.06 million cars were made, and currently, about 32 million vehicles are on Indian streets. Two-wheelers dominate the market with an 80 percent share.

However, in 2019-20, the sector had difficulties maintaining profitability and sales figures on a quarterly or even yearly basis. In August, it was reported that there was a 35.9 percent decline in sales to the domestic market for top seller Maruti Suzuki, with 94,728 units sold due to low market confidence, slowing growth in the economy, and a crisis within the financial institutions that are not banks (NBFCs).

The March 2020 data illustrate the impact of the lockdown as a result of the COVID-19 pandemic. The month that ends a financial year is typically the most popular time for clearance of inventory in the sector. Maruti Suzuki India saw its total sales of passenger vehicles in the country decrease by 47.4 percent to 76.240 models in March 2020 as compared to 145,000 units sold during March 2019. Export sales fell nearly 55 percent to 4,712 units, down from 10,463 in the previous year. Overall sales were down 16 percent in FY20; the company closed the fiscal year with sales totaling 1.563 million units in comparison to 1.862 million during the prior year’s fiscal. In addition, it saw a 40 percent drop in sales to the domestic market for Hyundai Motor India to 26,300 units in March 2020. Mahindra and Mahindra’s car sales observed similar trends. The number of passenger vehicles sold dramatically fell 88 percent, up to 338 units by March 2020, down from 27,637 cars in March.

The change between Bharat Stage 4 (BS4) to Bharat Stage 6 (BS6) emission standards has been a major contributor to the problems of the industry as BS6 was set to go into effect beginning on April 1, 2020. This caused long-term issues for the auto sector from the manufacturing end to the point of sale, such as technology upgrades and shutting down of manufacturing plants to prevent the accumulation of inventory from the past. Since new BS6 vehicles were not readily available on the market, and the transition to BS6 was a major factor in the of BS4 vehicles, this increased the inventory of older (BS4) vehicles, both in two-wheeler as well as four-wheeler models.

Thus, many auto plants of the top players were shut for a few days in order to stop production, resulting in unemployment among the workforce on contract. Other macroeconomic aspects that contributed to the crisis are the decrease in consumption and demand from urban and rural markets, as well as the liquidity crisis in financial markets. The NBFCs have a huge exposure to the financing of vehicles across the country and cover all categories.

In July, NBFCs financed almost 70 percent of the new two-wheelers and 60 percent of the new commercial vehicles sold in the country, which comprised the companies Infrastructure Leasing & Financial Services (IL&FS) and Dewan Housing Finance Ltd (DHFL), which were the leading NBFCs. In the event that IL&FS and DHFL were in financial trouble and spread this crisis through the financial services industry to the automobile industry, dragging it down.

The Society of Indian Automobile Manufacturers (SIAM) in July of 2019 addressed the Indian government in July 2019, asking India to take the appropriate steps to increase the credit flows within the system, thereby facilitating the purchase of new vehicles. The aim was to increase liquidity, particularly in the NBFC sector, which experienced quarterly and monthly reductions in sales. This even resulted in the closing of some dealerships.

The reverse gear in the Indian auto industry took place shortly after the government announced an all-over lockdown on March 24, 2020, in order to stop COVID-19’s spread. SIAM has declared that the closing of the auto’s OEM manufacturers and component makers will cause a reduction of INR 2,300 crores per day. A cumulative three-week closure of the automobile industry. This would yield a total decrease of INR 48.300 crore.

In support of the face of a lockdown, all major automakers immediately halted production, including Maruti Suzuki, Honda, Hyundai, Tata Motors, Mahindra and Mahindra, Toyota Kirloskar Motors, Kia Motors, and others. The two-wheeler companies Hero MotoCorp, Honda Motorcycle, Scooter India, TVS Motor Company, Bajaj Auto, Suzuki Motorcycle, and Yamaha have shut down production.

A slight support was provided on March 27, 2020, on the day that the Federation of Automobile Dealers Associations petitioned the Supreme Court to allow the sale of BS4 inventory of vehicles, which had been accumulating since the ongoing COVID-19 crisis. The Supreme Court gave an extension of ten days following the lockdown of 21 days, which is currently in place to auction off the older stock of BS4 vehicles, with the caveat that only 10% of the un-sold BS4 inventory can sell in India outside the Delhi-NCR region, where none of the inventory can be sold. The unsold inventory includes 700,000. Two-wheelers. 15,000 passengers. Vehicles, as well as 12,000 commercial vehicles.

Let’s believe that the Indian automotive industry, which has been growing for the past two decades but has recently been in a downward spiral, is experiencing the most severe. However, the current global pandemic, including the lockdown as well as job losses and declining demand, creates a gloomy doom for the sector in the near term.

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