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Auto’s cup of woe

The millennials are not purchasing cars due to EMI allergy and hence the crisis in the automotive industry, says the Finance Minister. People prefer cab aggregators, said a government spokesman earlier. There is over-production, says the chief of Bajaj Auto. There is a cost increase, says the boss of Maruti Suzuki. Nothing but the mishandling of GST and demonetisation, says the Opposition. While each of these is partly valid, none of them is the root cause for the malaise.

Demonetisation and GST engulfed us in November 2016 and July 2017, respectively. These did send many small and vulnerable firms into oblivion. There was, however, no noticeable impact on the overall performance of the automotive industry either in FY16-17 or in the subsequent years. The gross number of vehicles sold, both domestic and exports, and the production figures for the three years from 2016-17 to 2018-19 have shown a rising trend. Thus, while the misery was real, they did not vitiate the automotive story.

Model-wise vehicle sales are more illustrative of the consumer mood. While niche models and those designed to make a style statement have plunged, models catering to the mass market have minimised the damage. Hence OEMs have been able to defend their vanilla vehicles, and customers who are looking at largely functional satisfaction are less hesitant to buy than those with discerning views.

The increase in permissible axle load to 37 per cent announced by the government for trucks and the abolishment of sales tax check-posts have increased truck utilisation and speeded up transit time to an astonishing degree. On an average, the ability to take 30 per cent extra load and complete the journey in 90 per cent of the time translates into 45 per cent extra capacity. The positive outcome of GST has had an unintended adverse impact on the demand for new trucks.

According to an RBI study, taxi registrations are just 6 per cent of total car sales volume. Considering that this participation is quite minor and that for car purchases abandoned in favour of cabs, the aggregators will purchase some cars, the final net effect is not significant.

The accelerated changeover from BS-IV to BS-VI is an important factor for the slowdown since consumers see a threat to the longevity of BS-IV vehicles. Since the government is seen to usher in changes in a somewhat abrupt and accelerated manner, there is fear that scrap policies could be announced next which will limit the life of these vehicles with loss in investment.

Customers will not see value in measures which add cost without a visible return. High GST, special charges in some States, compulsory incorporation of safety features such as airbags and change to BS-VI are some such elements.

While the concern on safety is laudable, the approach must be tempered. Transport benefits to poor rural folk should not be stymied by mandatory airbags for vans used by them in shared mode. The cost escalation will eliminate this economic transport for the poorest in the rural areas. .

Where do we go from here? Have a transparent roadmap in consultation with the industry — covering everything from motive power to scrappage. Have old and new versions running together for some time for smooth transition. But, most important, kick-start the economy and redevelop cities and towns with parking space. The alternative to this would be to go the Singapore way — efficient buses and mass transit systems.

The writer is an auto industry veteran

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