The Indian automotive sector is facing an ominous future in the near term – as recent figures show. In April’19, the Society of Indian Automobile Manufacturers Association (SIAM) announced a 17% decline in passenger vehicle sales – the latter stood at it’s lowest in 8 years. It was the 10th consecutive month of de-growth for a sector that usually stands at the forefront in terms of indicator of good economic health. The situation only went from bad to worse – May 2019 became the worst month since September 2001 in terms of Y-o-Y sales decline.
May also saw production of vehicles exceeding sales
The unsold stock to-date stands at 500, 000 passengers vehicles and 3 million 2-wheelers. This has now forced 7 of India’s top 10 auto manufacturers to look at production shutdown. Earlier this month, Mahindra informed the stock exchange of “no production days ranging between 5-13 days” in the April-June quarter, to align it’s production with sales estimates. Market leader Maruti will close it’s manufacturing facilities in Gurgaon & Manesar between June 23rd & 30th to cope with production/sales imbalance.
The effect is visible across the entire value chain. Auto ancillary sector in the Punjab-Haryana-HP belt have cut down on their production targets by 25-30% to avoid inventory pile up. Many of these have also put on freeze their expansion/modernization plans. At the other end of the spectrum, the pressure is showing in the distribution chain as many dealerships are now sitting on stocks of 50+ days as against the usual trend of 20-25 days.
Federation of Automobile Dealers Association (FADA) has cited that the pace at which dealerships are closing is something that the industry has never seen before.
RBI data released in June shows consumer confidence index dropping to 97.3 index points in May from 104.6 points in March. Any read below 100 is an indicator of pessimism among consumers. In this scenario, spend on big ticket items like car and durables is clearly low on consumers’ priorities thus aggravating the grim scenario for the auto sector. The impending national budget in July – the first of the Narendra Modi II is now being eagerly awaited by the sector as a much needed boost to tide over the current gloom.