Blame game as wheels come off India’s auto sector

Updated September 16, 2019

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In this photograph taken on September 11, a security guard patrols a holding area for new vehicles near a godown on the outskirts of Hyderabad. — AFP
In this photograph taken on September 11, a security guard patrols a holding area for new vehicles near a godown on the outskirts of Hyderabad. — AFP

NEW DELHI: When India’s Finance Minister Nirmala Sitharaman claimed that a preference by millennials for ride-hailing apps was contributing to a painful slump in car sales, it sparked an online backlash from furious youngsters.

They started a campaign using ironic hashtags such as #BoycottMillennials and #SayItLikeNirmalaTai last week to push back against older generations blaming them for today’s problems in society.

While data shows firms such as Uber and Ola are popular with younger consumers more comfortable with shared mobility and digital trends, analysts say the auto industry’s problems run deeper than that — and it is facing more serious bumps in the road.

With a population of 1.3 billion people, India is the world’s fourth-largest car market and one where owning a vehicle is as much a status symbol as a means of transport.

But the country’s once-booming auto sector -- seen as an important barometer of overall economic health -- is in the slow lane, with sales slumping for the 10th-straight month in August.

“The minimum (priced) car that you can get nowadays starts from six to seven lakhs ($8,500 - $9,800),” university student Somya Saluja said.

“So it’s much easier to pool in rather than to buy a new car.” Even India’s richest banker, Uday Kotak, recently said that his son was more comfortable using ride-sharing apps than owning a car.

Uber and Ola reportedly facilitate some 3.65 million daily rides.

Still, Avanteum Advisors managing partner Ramakrishnan said the key reason for the drop in car purchases was economic.

“I think the slowdown is primarily because consumer confidence is low and income growth has really been impacted in the last couple of years,” he said.

India’s economic growth slowed for the fifth-straight quarter in April-June to reach its weakest pace in five years.

Banks are also more reluctant to lend owing to a liquidity crunch caused by the near-collapse a year ago of IL&FS, one of India’s biggest shadow banks -- finance houses responsible for significant consumer lending.

There are also extra production costs caused by new rules requiring cars to be compliant with emissions and safety standards, while a 28 percent goods and services tax (GST) introduced in 2017 has dampened demand, analysts said.

“Cars are increasingly becoming unaffordable now because of so many taxes,” Karvy Stock Broking auto analyst Mahesh Bendre said.

“To put things in perspective, if you buy a car in India, at least 40-45 percent of costs go to the government in terms of taxes and registration charges and so on.”

Calls for tax cut

A year ago, India displaced Germany to become the world’s fourth biggest car market, having clocked up annual sales growth above seven percent for several years.

But the promising growth ride is screeching to a halt, with passenger car sales tumbling this year, including a 41 percent drop last month — the worst since records began more than 20 years ago.

Aside from passenger cars, sales of commercial vehicles, motorcycles and scooters have also been hammered.

Published in Dawn, September 16th, 2019