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Car sales in slow lane

Car sales in slow lane
Highlights

India economy is not bad shape though there are no fireworks in GDP numbers. With three consecutive rate cuts announced by the Reserve Bank of India (RBI) in the last six months, interest rates on consumer loans are softening.

India economy is not bad shape though there are no fireworks in GDP numbers. With three consecutive rate cuts announced by the Reserve Bank of India (RBI) in the last six months, interest rates on consumer loans are softening.

Inflationary pressures are within the apex bank's target of 4 per cent. Stock markets are a on roll, scaling new peaks. The Narendra Modi government retained power at the Centre with more majority in 2019 General Elections that it secured five years ago.

Despite all these positives, one key sector is in a bad shape now. That's automobile sector. In June, all major automakers registered decline in sales.

Maruti Suzuki, the country's largest carmaker, saw its sales down by a whopping 15 per cent. Korean automaker Hyundai, second largest carmaker in India, did not perform any better as its sales fell by over 7 per cent.

Homegrown automaker Tata Motors was among the worst performers. The sales of its passenger vehicles nosedived by a whopping 27 per cent. Even two-wheeler makers like Hero Motors, the market leader, and Honda Motorcycles skidded on the sales front. Their sales were down by 12 per cent and 16 per cent respectively.

And June 2019 was not the first month that automakers experienced sluggish sales. It has been the case for the past one year or so. Automobile sales have been declining for the last eight months in a row.

Industry insiders and observers expected the key sector to be back on growth track after a stable government took charge at the Centre. As June sales showed, that has not happened, and the auto sector continues to bleed.

Why the auto sector has been on backfoot for such a prolonged period? Experts cite weaker consumer sentiment, high interest rates on auto loans and high GST on vehicle as reasons for sluggish sales.

The other thing is that new emission norms for automobiles will come into force from April 1, 2020. That means only Bharat Stage VI (BS6) compliant vehicles can only be sold after that date.

Therefore, some consumers may be postponing their purchases to lay their hands on BS6-ready vehicles. There are other reasons as well. With the entry of app-based taxi services and self-drive cars, there is no apparent need to buy own vehicles in major cities.

Many surveys among millennials are pointing towards this new phenomenon. Increasing parking woes in metro cities are also pushing people towards taxis.

This trend may continue in future too. The central government's frequent announcements about its plans to encourage electric vehicles are also impacting auto sales.

Furthermore, Indian families may not opt for second vehicle thanks to increasing app-based taxis. Therefore, automakers should keep these new trends in mind and realign business plans.

The Centre should also come to the rescue of the sector by reducing GST on vehicles, a measure which will boost vehicle sales. RBI should see to it that banks pass on rate cut benefits announced by it,and reduce interest rates on consumer loans.

Otherwise, the automobile sector, the key driver of India's economy, will land in trouble!

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