The make or break moment for India's auto sector in 2020

Last Updated: Tue, Dec 31, 2019 16:27 hrs
Auto sector pleads for help!

New Delhi: After enduring massive sales' truncation during the last 12 months, the Indian automobile sector now braces to face its latest and hopefully the last hurdle of the slowdown saga -- Bharat Stage VI transition -- in 2020.

The challenge will be more towards convincing customers to shell out more for vehicles with just an upgraded engine, industry observers opined.

However, with the demand environment showing signs of stability and inventory levels under control, this transition is likely to be less problematic unlike that of BS-IV.

Nonetheless, the general economic slowdown will make the task even tougher as high tax rate and lower rise in average wage growth will deter many from making a purchase.

The Indian automakers are all set for transition to BS-VI from April 2020.

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"The challenges the industry still faces include lack of positive sentiments with slowdown still persisting, finance availability, transition to BS-VI more so on the commercial vehicles segment," Grant Thornton India LLP Partner, Sridhar V. told IANS.

"Most oil cos have expressed that upgraded fuel will be available."

Furthermore, Rahul Mishra Principal at A.T. Kearney pointed-out: "The one big challenge will be to sell old models with just an upgraded BS-6 engine."

"It will be difficult to convince the customer to to buy the same product, with any change in features but with the better engine -- a difference that a common user can not even see."

The price increase will have to be supported by new or facelift products where the engine upgrade is part of a broader upgrade package with changes that are visible and valued by customer, Mishra added.

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According to ICRA Senior Analyst Sruthi Thomas: "The first three months of the year would continue to be subject to uncertainties emanating from the impending BS-VI transition... Phasing out of BS IV inventory and stocking up on BS VI inventory in a balanced manner would be a key challenge for the OEMs."

"There is expected to be a material increase in vehicle prices across automotive segments with the transition to BS VI emission norms. Accordingly, demand, especially in price-sensitive segments, are likely to be impacted."

The latest challenge comes after 12-months of relentless sales truncation due to the demand slowdown on account of high goods and services tax (GST), farm distress, stagnant wages and liquidity constraints.

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As per the latest data furnished by the Society of Indian Automobile Manufacturers (SIAM), the sector's total sales declined to 17,92,415 units in November from 20,38,007 units sold during the corresponding month of the previous year.

In October, the overall sectoral off-take had declined by 12.76 per cent to 21,76,136 units.

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Segment wise, the off-take of passenger vehicle sales during November slipped by 0.84 per cent to 2,63,773 units on a year-on-year basis.

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Passenger cars' sales de-grew by 10.83 per cent to 1,60,306 units from 1,79,783 units sold during November 2018.

But the utility vehicle sales grew by 32.70 per cent to 92,739 units, whereas vans' off-take went down by 34.32 per cent to 10,728 units against that in the same month a year ago.

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On the other hand, sales of the key indicator of economic activity -- commercial vehicle -- went down by 14.98 per cent to 61,907 units.

The sale of three-wheelers in November rose by 4.45 per cent to 55,778 units.

In the case of two-wheelers, which include scooters, motorcycles and mopeds, the sales edged lower by 14.27 per cent to 14,10,939 units.

Notwithstanding, exports across categories were higher by 17.60 per cent at 4,11,470 units.

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The overall sales decline dented production levels which went down by 1.41 per cent to 2,336,711 units.

Recently, a Motilal Oswal Institutional Equities report said the stability has partly appeared due to high discounts, better availability of finance and improvement in rural sentiment.

"After operating in a tough environment over the last 15 months, the auto industry now faces the last hurdle of BS6 transition, post which it will likely be 'business as usual' from 2HFY21, in our view," the report said.

Rohit Vaid can be contacted at rohit.v@ians.in

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