After a bumpy ride in 2019, auto industry may see revival in H2FY21

Despite challenges, 2019 saw new brands coming in, mergers and partnerships as well as slew of launches

The year 2019 has been one of the toughest for the automobile industry, with a 13.8 per cent drop in domestic sales from January to November 2019. 

Despite the challenges, 2019 saw new brands coming in, mergers and partnerships and model launches as the industry is optimistic about 2020.

On a rough road

Society of Indian Automobile Manufacturers (SIAM) data shows that from January to November 2019, total automobile sales was down to 21,667,672 from 25,141,388 units, a year ago.

Commercial vehicle sales declined 22.12 per cent during April-November 2019, followed by passenger vehicles (17.98 per cent), two-wheelers (15.74 per cent) and three-wheelers (4.97 per cent). 

The slowdown resulted in 13 per cent production cuts and job losses to the tune of over 2.5 lakh.

Slowdown in the economy, price increase, regulatory changes, change in ownership model, slowdown in infrastructure spending and change in axle load norms are the key reasons for the poor sales.

Finance minister Niramala Sitharaman, in September, said several factors, including BS-VI emission norms, registration-related matters and a change in the mindset of millennials, who now prefer Ola or Uber rather than committing to monthly installments to own a car, led to the slowdown.
 

Maruti Suzuki India’s executive director (marketing and sales) Shashank Srivastava had said, “Ola and Uber factor may not be strong to contribute to the current state of slowdown. I think we need to watch and study it more before arriving at such a conclusion. They came into existence during the last 6-7 years. In this period, the auto industry also saw some of its best times. So, what happened only during the last few months that the downturn became so severe? he asked.

S S Kim, managing director (MD) and chief executive officer (CEO), Hyundai Motor India, said, besides consumer sentiment, regulations, cost increase and customer mindset on whether they need to buy now, since BS-VI is going to come from April, were the other major roadblocks.

Motofumi Shitara, chairman, Yamaha Motor India Group of Companies, added, the two-wheeler sector was also impacted by poor customer sentiment, regulations change, credit issue and high insurance cost, among others.

During the year, motorcycle brands UM Motorcycles and Cleveland Cyclewerks stopped their operations in India.

EVs see a big push

Electric vehicles (EVs) saw a good traction in 2019 with the FAME-II scheme, at an outlay of Rs 10,000 crore. It came into effect in April 2019, followed by reduction in goods and services tax (GST) on EVs from 12 per cent to 5 per cent.

Hyundai Kona was rolled out and many of the car makers announced that they would be launching EVs to back the government’s ambition of going 30 per cent all-electric by 2030. 

Currently, EV market penetration is only 1 per cent of the total vehicle sales in India, and of that, 95 per cent of sales are electric two-wheelers. Only 1,500 electric cars were sold for personal use in the last eight months.

The ministry of heavy industries and public enterprises (MHIPE) said that, till November, close to 285,000 buyers of electric and hybrid vehicles have benefited from subsidies to the tune of Rs 3,600 crore provided under the FAME-India programme.

New brands and alliances

British brand Morris Garages and South Korea’s Kia Motors made inroads separately with SUVs and managed to clock good numbers.

Mahindra and Ford announced a joint venture or JV to co-develop seven new models, including SUVs and EVs.

PE and corporate investment flows into EVs and shared mobility start-ups grew nearly 170 per cent to $397 million (upto November) from $147 million, a year ago. Hyundai, Hero, TVS, Bajaj, Ratan Tata and Mahindra were among the corporate investors. Recently, Mahindra acquired 36.63 per cent stake in Meru Travel Solutions (Meru) in the first tranche.

Road ahead

While China’s SAIC-owned British brand Morris Garage already entered the Indian market, few more Chinese auto majors, including Haima Automobiles, Great Wall Motors and Changan Automobiles are expected to make inroads. Besides, Citroen is expected to launch its first car by the second half of the next financial year.

Dozens of launches are being planned for 2020 by passenger car and two-wheeler makers. They even include EVs. Notables among them are Hyundai Aura, Tata Nexon EV, SUV Gravitas, hatchback Altroz, Skoda Karoq SUV, Octavia, Land Rover Defender, Audi e-tron, Nissan Leaf EV and Kia Carnival.

Companies hope that from the second half of the financial year, the industry should turn around as BS-VI should settle down. This is because of government incentives to buy vehicles and steps taken to address liquidity crunch, economic growth and infrastructure spending.

Kim said, “Issues related to BS-VI won’t be there from the second half, which will lead to growth.” He expects growth to be single digits next year, since the first half will continue to see pressure.

Shitara said, he is bullish about India, considering the country got a huge aspiring young population and the company is optimistic that demand will revive soon.

The young generation is looking for premium products with a differentiation.

Vinod Aggarwal, MD & CEO, VE Commercial Vehicles, a Volvo Group and Eicher Motors joint venture, said the current phase of slowdown is temporary, and the medium and long-term horizons look good. 

Non-banking financial company (NBFC) issues are being addressed and banks are being recapitalised. The government is also taking steps to improve the economy and sentiment and has started considering infrastructure spending.

“With all these factors, we feel revival will start from September-October of 2020,” he added.