Reports of crisis in the auto industry have been rampant past 2 or 3 days. It is reported that the Auto sector is reeling under an unprecedented meltdown, triggering massive job losses. The numbers are simply frightening. Passenger vehicles sales down by 31% in July, a record 9th-month straight dip, over 3.5 lakh people rendered jobless, and 286 dealerships withdrawn in the last 18 months.
Though the slowdown in the auto sector reflects a general slowdown in the overall economy, that started with Demonetisation, and flawed implementation of GST, the major concern is the loss of a major chunk of jobs, with a further loss of over 10 lakh jobs hovering over the horizon. Last month’s sales were only 2 lakh cars -the worst performance for automakers in the last 15 years, I believe. Even the launch of new models such as Mahindra XUV300, or the Hyundai “Venue” has not succeeded, in reversing the slide. The reports say, that the most worrying aspect is, falling sales of two-wheelers, and commercial vehicles, which are not usually impacted by recessionary trends.
While a combination of factors including external environment must have led to the present situation, one of the major reasons, reported, was, the crisis that has enveloped the non-banking Financial companies (NBFCs) which have been the traditional source of funding auto sector. They are not in a position to finance PVs. Earlier over 30% of cars and 65% of two-wheelers used to be funded by NBFCs. Our Finance Minister could look into giving a push to revive lending to NBFCs that help in creating demand in different sectors. They provide a significant portion of the personal loans to prospective buyers as the banks are still in the process of cleaning up their books. Incidentally one of the reasons for the plummeting of sales is that the industry is not offering attractive variants. This is because of game-changing emission control standards that will come into effect by next year.
Therefore, the solution is a more holistic one; that recharging the economy with more central investment, to create more jobs and higher demand. Till then, I think automakers will probably, have to continue their bumpy ride
Though the slowdown in the auto sector reflects a general slowdown in the overall economy, that started with Demonetisation, and flawed implementation of GST, the major concern is the loss of a major chunk of jobs, with a further loss of over 10 lakh jobs hovering over the horizon. Last month’s sales were only 2 lakh cars -the worst performance for automakers in the last 15 years, I believe. Even the launch of new models such as Mahindra XUV300, or the Hyundai “Venue” has not succeeded, in reversing the slide. The reports say, that the most worrying aspect is, falling sales of two-wheelers, and commercial vehicles, which are not usually impacted by recessionary trends.
While a combination of factors including external environment must have led to the present situation, one of the major reasons, reported, was, the crisis that has enveloped the non-banking Financial companies (NBFCs) which have been the traditional source of funding auto sector. They are not in a position to finance PVs. Earlier over 30% of cars and 65% of two-wheelers used to be funded by NBFCs. Our Finance Minister could look into giving a push to revive lending to NBFCs that help in creating demand in different sectors. They provide a significant portion of the personal loans to prospective buyers as the banks are still in the process of cleaning up their books. Incidentally one of the reasons for the plummeting of sales is that the industry is not offering attractive variants. This is because of game-changing emission control standards that will come into effect by next year.
Therefore, the solution is a more holistic one; that recharging the economy with more central investment, to create more jobs and higher demand. Till then, I think automakers will probably, have to continue their bumpy ride
