ECONOMICS ASSIGNMENT

(Decline in sales in Automobile Sector)

The passenger vehicle segment reported the slowest growth that it’s ever
recorded in the past 20 years! We are talking about slow down across
segments​ ​—​ ​cars, bikes, rickshaws, trucks, you name it.

1. NBFC Crisis: After the dramatic default by IL&FS last September, the
NBFC sector has been faced with a major liquidity crunch. The overall
exposure of mutual funds to financial sectors plummeted by
approximately Rs 64,000 crore between July 2018 and June 2019. Since
NBFCs are the major financiers of customers who do not approach
banks, the liquidity crisis of the NBFC sector has affected auto sales to a
large extent. The SBI report assigns a 30 percent weightage to this factor
in explaining the auto slowdown.
2. Decline in demand: According to the report, a significant decrease in the
demand, especially in rural areas, for new automobiles is responsible for
the degrowth of the auto industry. This factor, as per the report, is
another reason behind the auto slowdown and has a weightage of 20
percent.
3. Increased acquisition costs: Vehicle prices have seen an upward revision
in 2019 and the trend is expected to continue in 2021 due to various
safety, insurance and emission norms related compliance costs. Higher
insurance costs coupled with the introduction of the GST have increased
acquisition costs by 2-5 percent. This factor is 10 percent responsible for
the slowdown, according to the report.
4. New axle load norms: In July 2018, the government increased the official
maximum load-carrying capacity of heavy vehicles by 20-25 percent with
the aim of bringing down logistics costs. However, the decision adversely
affected the sale of automobiles, particularly commercial vehicles and is
believed to have a weightage of 10 percent in explaining the decline in
the auto industry sales.
5. Other factors: Slowdown in new car sales suggests that the demand is
shifting towards a pre-owned car market because of significantly lower
costs of second-hand vehicles as compared to the new ones. The
 pre-owned car market in India has been expanding considerably in the
past few years and buying and selling of second-hand cars exceeded the
sales of new cars in 2018-19. Further, the increased availability of
automobile rentals promotes consumers to rent vehicles instead of
buying them. Finally, the lack of a clear migration policy towards Electric
Vehicles (EV) creates confusion among buyers, contributing onwards a
reduction in auto sales.

● Apart from Mahindra, Honda & Toyota; all OEMs saw a Year on year
decline in sales. The biggest decline was seen for Nissan and Datsun
which registered the drop of -41% Year on year basis
● Maruti Suzuki reported a flat percent increase in its domestic sales at 1,
18,515 units in Mar’19 v/s 1, 18,842 cars sold in Mar’18.
 ● Nexa seems to be struggling while it reported a -6% degrowth in Year on
year sales. Even with the launch of New Baleno ; Nexa wasn’t able to
recover the volumes and post a positive growth.
● Hyundai degree -8% in Mar’19 v/s the same period last year. Even post
Santro launch; Hyundai hasn’t gained significant numbers.

Recently, India Ratings and Research published the June 2019 edition of its
credit news digest on the country's auto sector, highlighting the trends in the
sub-segments of the auto sector.
The drop in wholesale numbers hints at more production cuts, which auto
firms have been undertaking
Sales of the five companies, which together make up about 85% of India’s
passenger vehicle market, have fallen nearly 31% last month from a year
earlier
Domestic automobile industry's sales volume fell 12 per cent YoY in June 2019
on weak consumer sentiments due to the slowing economy amid delays in the
onset of monsoons. With rising inventory levels at dealer level, most original
equipment manufacturers continued to take production cut in June 2019,"
India Ratings and Research said
Crimped demand has led to nearly 300 dealers having to shut operations,
according to the Federation of Automobile Dealers Associations
Sources: business today, CNBC