Sunit Roy
Points of View

Why are auto sales on the decline?

We interviewed a doyen of the automobile business, an auto expert and a brand consultant to get different points of view.

The Economic Times recently reported that the Indian passenger vehicle (PV) sales slide continued in the first month of the fiscal year 2020. The overall PV wholesales has declined by 17 per cent year-on-year to 2,45,599 units in April 2019 compared to 2,96,369 units dispatched in the same month last year.

Now, the Federation of Automobile Dealers Associations (FADA) has released data saying retail sales of PV in March declined by two per cent to 2,42,457 units as compared to the same period last year. Sales stood at 2,47,278 units in April 2018. The sale of two-wheeler also declined by nine per cent to 12,85,470 units last month compared to the 14,09,662 units it was last year.

Why are auto sales on the decline?

Cars are now more of a necessity than status symbols. And the trend is changing in metros, where car ownership goals are not as high as before, given the proliferation of shared-mobility services like Uber and Ola. With easier access to transport, the need to own a car or multiple cars has dropped, at least in Tier 1 cities. With millennials, especially, car ownership has dropped down in the list of life goals. However, the demand in Tier 2 and 3 towns continues to remain strong at least for the entry and mid-level options. But a lot is dependent on external factors like the monsoons which are predicted to be lower than normal this year.

We asked the experts about the factors that led to the decline in auto sales and if there's a change in the mindset of potential buyers (30-40 year age group) with disposable income. Here's what they have to say:-

RC Bhargava, chairman, Maruti Suzuki

Why are auto sales on the decline?

RC Bhargava

The current slowing is cyclical and short-lived. Experience shows that sales substantially drop in the pre-election year (eg. 2008, 2012) and then go up significantly in the election year. In 2009-10 it was around 20 per cent while in 2014-15 it was around 12 per cent.

We don't think anything major has happened in the economy. Before elections, people usually stop buying cars, but we are not clear why sales go up after elections. We are waiting to see if the same pattern is repeated post this year's election.

In our experience, a decline in sales doesn't continue for two consecutive years. For manufacturers, the best way to counter this is to be flexible, to adjust the production as per customer demand. We are preparing accordingly; in 2019-20 we are expecting growth in the range of 4 to 8 per cent.

Advertising expenses are part of the overall marketing efforts. Several initiatives including ATL and BTL activities help drive sales. We will continue this focus.

Roshun Povaiah, editor - tech and auto, The Quint

Why are auto sales on the decline?

Roshun Povaiah

There are multiple factors at play which has led to a slowdown in the industry. However, I think the dip this quarter is primarily because car manufacturers have been rejigging their models because of the new mandatory safety and upcoming BS-6 emission norms. From April 1, all cars have to comply with new safety norms that include mandatory airbags, ABS, parking sensors, seat belt reminders and speed warning alerts. By October this year, they will have to meet the new crash test standards and by April next year, BS-6 emissions standards.

That's led to many car makers pulling some cars off the line or scaling down production. This reflects in consumer sentiment too where buyers are putting off purchases in anticipation of better, safer cars and updated models coming out. In the Delhi NCR region, the change in registration norms - diesel cars can only be registered for 10 years, as compared to 15 for petrol - has led to a sharp drop in demand for diesel vehicles. People are also putting off purchases until the general elections conclude, due to the uncertainty of government policies.

Also, the rise of cab transportation - Ola, Uber etc. - is a big factor in metros, at least. Personal car ownership is dropping, but it is partly offset by an increase in demand for commercial cabs as more Ola and Uber cabs hit the roads. Households that had two or more cars earlier are now able to manage with just one, thanks to easy access to cabs.

As far as alluring potential buyers is concerned, car companies are exploring newer means of marketing rather than traditional advertising. Many are looking at influencer marketing as an option. With new brands coming in this year like Morris Garages and Kia Motors, they are likely to be big spenders across all kinds of media, since they are late entrants to the market.

Prabhakar Mundkur - brand strategy adviser

Why are auto sales on the decline?

Prabhakar Mundkur

It's not only the sale of PVs that has crashed. In the last four trading sessions, Reliance Industries has lost Rs 96,000 crores in market cap hitting a 10-week low. On May 8, the Sensex fell for the sixth straight session taking the aggregate fall over six days to 1,278 or 3.3 per cent. There is a slackening of demand both in urban and rural markets due to liquidity problems. Agri-distress has also compounded the situation. This is not unusual during elections.

Discretionary spending will definitely go down during uncertain times. A car is a big ticket item for individuals and families and buyers will naturally postpone buying decisions temporarily. Washing machines and air-conditioners have also seen flat sales since Jan/Feb. Until March, the impact may not have been felt since before March; several people buy a car so that they can claim depreciation.

During elections, there is always a slackening of demand. Indian markets are definitely concerned about the outcome of the elections. Consumers are just holding back purchase decisions until the elections are over. Any government policy change can have a huge impact on consumers' earnings. Once the politico-economic situation stabilises, I expect consumers to go back to normal slowly. It is possible passenger car sales will also stabilise and this temporary dip may not affect overall annual figures.

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