In today’s blog, I am writing about an interesting development which happened during last few days, and this is about the recession happening in the automobile industry. You must have read the news that the automobile sales are down by almost 30% as compared to last year and Maruti Suzuki’s plant at Gurgaon has stopped productions for 2 days in a week and there are news that workers are being laid off. There have been umpteen numbers of views expressed by leaders and businessmen in this matter. Some of the views are
- There is worldwide recession in the auto industry and this is also affecting Indian auto industry also.
- The policies of present govt have overall affected the Indian economy and this has also hit the auto industry.
- The presence of Ola/Uber and other App based cabs in major cities in the country are indirectly affecting the sales of new cars. The consumers are not interested in investing in cars, when the App based cabs are easily available.
- There is heavy GST applicable on the cars, and other automobile products.
- Then there is proposed policy of govt, that only electric cars (E cars) will be allowed to manufacture post 2030. So some are waiting for further clarity on this policy before first time purchaser decides to buy the car.
Above are the major views expressed in the media.
Sometime I fail to understand that why every time there is recession in certain sector, the first demand from that sector is reduce the taxes on manufacturing of the said item. Now the auto industry is looking towards govt and expect that govt will reduce the taxes on their product .Few months back with the same taxes they were selling the cars and making profits. So why can not they reduce their margins and attract the consumers to sell their product. After all it is an open market and it is a question of demand and supply, and the basic management funda tells that whenever there is fall in demand then the first remedy is cost control and reduce the profit margins to bare minimum to survive. But these auto manufacturers do not want to cut their profits but wants that govt to reduce the taxes.
The presence of App based cabs have definitely affected the sale of cars to certain extent in metro and other big cities. I reside in Mumbai, and can tell you the situation- here the people who have cars also stopped using their cars and they prefer to use App based cabs for multiple reasons like
- Who wants to drive on pot holed roads in inching traffic during peak hour and also during non peak hours, and spend money in wasting the fuel.
- Secondly problems of finding parking place near your work place or wherever you want to travel during working hours.
- There is always a fear of your car being towed away by traffic controlling authority on the grounds of some silly reasons like parking near bus stops, school, temple, angular parking, parallel parking, parking in prohibitive area etc etc. With new rates of penalties, people fear to park in public places, instead they will travel by App based cabs or Public Transport.
- Lastly who wants to first invest few lakh rupees and then keep on paying EMIs for next so many years.
So in Mumbai city, if the first time buyers of cars are not coming forward to purchase new cars, definitely sales of new cars are affected.
Recently I read an article in social media on the auto industry and recession, some of the information of that article I would like to share with you all-
“ Many people feel the cars sales crisis is because of the economy? If you do some cross checking of Indian vehicle prices and world vehicles prices A BMW 320i costs 31,500 Euros in Germany (approx Rs 24,78,000). A Mahindra XUV 500 top model costs Rs 19,74,000 (Ex showroom Delhi). The cost difference is about Rs 5 Lakhs. In Germany a automotive worker gets Euro 31.4 per hour (Rs 2470), while in India a similar worker gets about Rs 77 per hour. A difference of about 32 times.
Now talk about technology included in BMW vs Mahindra XUV 500, is there any comparison? The cost of steel, rubber, plastic and other raw material is almost same throughout the world. Still a far more superior car like BMW costs only Rs5 lakh more compared to sub standard Indian vehicle, and mind it cost of labour in Germany is 32 times that of India. Then what has been the downfall of Indian automotive industry –it is pure greed. They make you pay European rates for a far sub standard product.
Then these Indian automotive guys lobby the govt to charge 130% import duty to protect their sales. Then instead on innovation, they jack up the prices to 5-10% just under the European costs to make sound that psychologically they are cheaper. They will cry losses, but that is because a lot of profits are hidden via complex corporate structures to avoid taxation. The bubble had to burst some times.
So friends, do not feel sorry for them. Journalist who report on the industry have no clue as to how the industry/business run. They walk around with Handouts from Public Relations Officer of the company who understands nothing.”
Plenty of the truth in above article.
Let us see, how the Govt reacts in this matter. My gut feeling is that govt might reduce certain percentage of GST, with elections to 4 states approaching in next few months.
Let us wait and watch.