[2000rpm]

Was expected to happen! If we have a city cut, I am sure Mumbai will show maximum drop. No Roads, Bad roads and lack of parking being Top 3 reasons in my view.

I dont even take the car to the mall nowadays, forget daily commute to office.

With metro construction, this number will fall further.

[gopalnt]

So many reasons combining at the same time creating this mess:

1. People who were earlier buying 2nd, 3rd car etc are now not doing it because they have Ola/Uber to rely on

2. Car prices have become costly but for what features nobody knows. There is no compelling factor to dispose an existing car to buy a new one because there is nothing new in terms of quality or features

3. Many new dealerships are being opened up within 10km vicinity of an existing dealership. This creates problems of sales and profitability for all those dealers

4. NBFCs have gotten into trouble. SMEs are not getting funds for their business and in turn affecting car buying decisions. In case of Salaried class, it is the IT industry which generally generates interest in buying cars. With job losses and paltry hikes, people in that industry just want to maintain their existing cars and don't want to buy a new one

5. With BS VI norms coming next year, a section of potential buyers have postponed their purchase decisions, especially those who want to buy Diesel cars

6. Finally, I think Indians are going back to the roots - "be happy with what you have"

[Guna]

What is the root cause? Are people buying lesser cars because of the emergence of OLA/Uber/Zoom etc + the improvement in the public transport (like Metro in many new cities)?
Or is it because the new generation don't believe in 'possessing' assets like car or house?
Or, is there a general slow down in the economy?
Is the phenomenon India specific or is it a global trend?

[Hayek]

I would be reluctant to panic based on just April sales. Sales for major players grew by between 6 and 10% in FY19, which is nothing to sneer at. Yes, there has been a slowdown in recent months - but periodic and temporary slowdowns are common in this business.

Directionally, I can see a few reasons for the recent slowdown in sales growth:
1) The NBFC crisis, due to which financing has become tighter, especially for the business class
2) The spread of Ola and Uber - which reduces the need for cars in general and second cars in particular
3) Election season - political parties have probably sucked a lot of cash out of the system, and it has not yet been injected back as yet.
4) OEMs running down dealer inventories given that the Supreme Court has barred sales of Euro IV cars post March 2020. Remember that any Euro IV cars left over will not be saleable.

1 and 3 will correct in few months but 2 is a structural event which will play out over years.

[swiftnfurious]

Originally Posted by Chetan_Rao

It's all coming together, and not in a good way.

..., overpriced non-VFM products,...

Am happy someone mentioned this and really hope this is a major reason / finding for the slow down and there is a strong revision in prices. I bought a Swift @ 6L in 2008, in 2018, I get the same Swift (more or less) for 10L. I keep thinking whether money has lost value - my salary has increased 3 fold in the same period, but I still cant see value in spending such a chunk for essentially the same car (or the same segment). After tasting happiness in the pre-owned route (twice), I doubt I'll spend top money on new vehicles. Yes, takes time to build corpus for buying a pre-owned one but I can buy BIG with so less money in todays' market.

[BoneCollector]

Originally Posted by SmartCat

[b]

In the past 2 years,

- 205 dealers have wound up operations
- 300 outlets shut
- Losses of Rs. 2,000 crores
- 3,000 jobs lost

Attachment 1873178

As per the image, 26 dealers have shut shop in Bihar. In Patna alone, I've seen dealerships of Ford, Honda, Renault, Skoda and Mahindra shutting shop in last 2 years. Infact except Mahindra and Skoda, others shut shop in last 1 year. I feel that even Fiat showroom will be gone due to near 0 sales of Fiat cars and few of Compass. I'm not considering Chevrolet as they have exited the market all together.

[Arjun Reddy]

The on road prices of cars has gone up significantly. The most probable reason is the high GST and exorbitant road taxes.

Looks like the dealers and manufacturers are gaining traction to ask for tax cuts.

Election year has always contributed to bad business, be it automobile or real estate.

Also capacity utilisation seems to be a big issue with almost all manufacturers. The un used capacity costs are surely being loaded on to the vehicle costs thus making them costlier. Read somewhere that Maruti is now planning to manufacture their Brezza from the Toyota plant in Bangalore.


https://m.timesofindia.com/business/...w/69153762.cms

Maybe we will see 10 year warranties and awesome service packs thrown in now.

Apart from this retailers are cannibalising themselves by opening showrooms every where in tier one cities.At last count Bangalore had 54 Maruti showrooms. What is the need for that many showrooms in a single city?

Time to concentrate on tier 3-4 towns. Improve service set up there and they will have a whole new market.

[jaaz]

I feel a combination of Scams in Financial sector, which has slowed down credit and upward price corrections. Of course, the other factors discussed till now.

Upward price correction - In the last 5-7 years, prices were increased by manufacturers, every January and sometimes in between. Usual reason "rise in input costs".

And in the last 4 months of 2019, Maruti has increased prices, 3 times on some models. First, customary annual increase, then in new financial year, April and once again for added safety features or BS VI.

[tarik.arora]

This surely is a temporary blip in sales, and is part of the usual cycle. Additional factors affecting sales are elections, tight credit situation, and increased TCO. Even the 2-wheeler industry is facing this. Look at sales numbers for Hero and Honda for the last 2 months and you will be surprised (actually shocked!). Such overnight 20-30% declines don't give a right picture. It's not that the traffic situation has worsened in the last 2 months or OLA/Uber cabs have multiplied in the same period. The reasons lie somewhere else.

Dealers shutting down is not the right parameter to judge the market. There would be lots of Nissan-Renault-VW-Skoda dealers that would have shut shops because of lower volumes. As someone rightly mentioned, dealer level frauds and financial mismanagement is at its peak and the result is for us to see.

Also, the same ET article mentions that we have 25,000 sales outlets in India across all OEMs. 300 out of these 25,000 is a really small percentage, hardly 1.2%. With Kia and MG appointing new dealers, the picture might be different 2 years down the line.

[ambujlal]

Off the topic thought: Is an economy purely based on consumption and only consumption, be it automobiles, phones, TVs, or other gadgets sustainable? I don't know whether I should be happy that car sales are going down or be sad that jobs are at stake? A subdued auto sector means lesser cars, lesser smoke, lesser oil consumption (even it is for a few months). Or do I even have the moral right to pass judgment here when I myself drive to the office in a car? I guess I am probing the borderline where the economy meets philosophy and sustainable development

Recently Siddharth Vinayak Patankar in a panel discussion said that in India, car dealerships which also run a second-hand car business treat the second-hand car customers as second-grade citizens (or something like that). Isn't it time that such dealerships give those customers a more premium experience, a more trust-worthy relationship so that dealerships can sustain themselves through this period.

[Su-47]

Originally Posted by Nikhilb2008

The issue is that most dealers built up their business on loans. The car manufacturers knew it and encouraged it. Because of that, when the downturn came and credit dried up, most of these dealers were in trouble.

Very informative post Nikhil.

Time and again, we see this problem of over-leveraged businesses running into ground. In a way, this is good, as badly managed companies get weeded out, but the suffering for the people involved is real. At times, being risk-conscious is considered old-school and cowardly, and this reminds me of some interesting things Mr. Buffet wrote (bold emphasis is mine):

Unquestionably, some people have become very rich through the use of borrowed money. However, that’s also been a way to get very poor. When leverage works, it magnifies your gains. Your spouse thinks you’re clever, and your neighbors get envious. But leverage is addictive. Once having profited from its wonders, very few people retreat to more conservative practices. And as we all learned in third grade – and some relearned in 2008 – any series of positive numbers, however impressive the numbers may be, evaporates when multiplied by a single zero. History tells us that leverage all too often produces zeroes, even when it is employed by very smart people.

Leverage, of course, can be lethal to businesses as well. Companies with large debts often assume that these obligations can be refinanced as they mature. That assumption is usually valid. Occasionally, though, either because of company-specific problems or a worldwide shortage of credit, maturities must actually be met by payment. For that, only cash will do the job.

Borrowers then learn that credit is like oxygen. When either is abundant, its presence goes unnoticed. When either is missing, that’s all that is noticed. Even a short absence of credit can bring a company to its knees.

Source: Page 22 of http://www.berkshirehathaway.com/letters/2010ltr.pdf

[PGA]

I have tried to be a hack economist and collated some data from our monthly 'Cars Sales Figures and Analysis' thread. The result has been a little astonishing, we have been in midst of stagnation for last one year, don't know what the Apr figures will bring in.
Spike in last May/ Jun 17 can be attributed to GST launch. What I infer is that the slowdown is not on account of elections, NBFC mess or even the badly run business issue by the gen nxt, its a little deeper than that. Besides the reasons already discussed in the thread, I feel the cost of ownership is increasing by the day, it also includes the headaches of toll tax, traffic jams on account of rule of mob and general Police highhandedness in event of any mishap.

[coldice4u]

Originally Posted by PGA

I have tried to be a hack economist and collated some data from our monthly 'Cars Sales Figures and Analysis' thread. The result has been a little astonishing, we have been in midst of stagnation for last one year, don't know what the Apr figures will bring in.
Spike in last May/ Jun 17 can be attributed to GST launch. What I infer is that the slowdown is not on account of elections, NBFC mess or even the badly run business issue by the gen nxt, its a little deeper than that. Besides the reasons already discussed in the thread, I feel the cost of ownership is increasing by the day, it also includes the headaches of toll tax, traffic jams on account of rule of mob and general Police highhandedness in event of any mishap.

Quoting from the stats on a post on another thread.
https://www.team-bhp.com/forum/india...ml#post4582855 (Growth levels slowing : Indian car sales witness the worst festive season in 5 years)

April 19 figures stand at 245,599 a 17.13% decrease compared to April 18 numbers.

[Yieldway17]

In my view, primary reason is that cars have become expensive for what they do and how they are built. There is almost no value for money products in the market.

Thin sheet metal tin cans priced for 8lakhs and above was bound to hurt them in the long run. Manufacturers will turn this around, no doubt, but will go through some short term pains.

[avishar]

The slowdown is temporary. I am guessing it will last for another 2 more quarters till it starts recovering Q3/Q4 onwards.

All those reasons like infrastructure woes and Ola/Uber taking away sales is overblown. Automobile ownership penetration is still in low single digits, and there are millions of first time buyers every year. (Don't forget the huge second hand marker which is even bigger than new car sales unit-wise).

The main reasons why are:

1) A perfect storm with the election season + credit crisis. We are at the tail end of it.

2) Unsure of the future. Should I buy a car today or wait till when safety features are mandatory? Or when BS-VI is mandatory? Or when crash testing is mandatory?

Don't think of the average Teambhpian, but those whose car buying research does not stray far from what he or she reads on daily newspapers or Facebook. And the many thousands more in small towns and showrooms whose update of what's new in the car world is through ill-informed sales people. They hear one thing from friends, and another thing from someone else.

"Don't buy now, rates will go down more after election.
Don't buy a car, rates will jump up post election.
Maruti is stopping diesel, did you hear? Don't buy a diesel anymore.
Government is going to ban cars from Delhi, did you hear?
Government is going to ban people from buying more than one car in Mumbai, did you hear?
Electric cars is coming, super cheap to run. Wait for that. "

And so on and so forth.

3) Consumer loans have increased disturbingly fast in India. NBFCs have saddled consumers with loans for Microwaves to ACs to Two-wheelers. Consumer borrowing + average household debt is right now quite high. People are cutting down.

Indian households' debt doubles in FY17-18: What are we borrowing for and how much?


4) Leasing sales not that high in India. I don't know the numbers, but private sales usually account for just 50 percent in developed countries, rest are fleet sales.A vast majority of the cars are leased, so a certain number of cars are coming off leases every year, keeping the ball rolling.

The proportion of cars being bought in Britain on credit is rising, according to data released on Friday, as a regulator begins a review into how finance plans are sold due to fears of irresponsible lending.

In the 12 months to March, 86.5 percent of new private cars were bought by consumers using finance supplied by members of the Finance and Leasing Association (FLA), up from 82.7 percent in the same period in 2016, the industry group said.

The total value of consumer car finance provided in March rose by an annual 13 percent to a record 3.6 billion pounds, as buyers brought forward sales to avoid a tax hike which came into effect on April 1.

Since Britain began recovering from the global financial crisis at the start of the decade, most sales have been made using personal contract plans (PCP), where a buyer puts down a deposit and then rents the vehicle for two to three years.

At the end of the period they have to decide whether to buy the car outright or switch to a new model and continue making monthly payments, helping to propel car sales to record levels in 2015 and 2016.

5) Price. I have this hunch, but I can't back it up with facts. My hunch is, Indian families are finding it difficult to jump from Two-wheelers to four-wheelers.

There are roughly around 250 million two-wheelers and 25 million private cars in India, a 10:1 ratio. Considering that there is a high probability of a family who owns a car in India to own another one, less than 25 million families own a car then. The addressable section of population who owns some of private transport but does not own a car, is therefore massive.

So probably there are around 100 million families who would aspire to own a car one-day. But the gulf between two-wheeler prices and car prices are increasing every year. Most of these families would not have spent more than RS 60,000- RS 65,000 on their motorbikes and scooters. And going by Splendor sales figures, even less.

The small town Splendor fellow is having a tough time thinking about a car. Models are getting expensive every year, and manufacturers are not interested in making the cheapest ones. Unless you are willing to spend RS 4lakh ~ it's difficult to buy a decent hatchback these days. Probably one of the reasons why Omnis sell so well.

The obvious route is the second-hand market, which is why that is booming. But with tightening credit rural uptake of cars has been slowing down. Is cheaper cars the solution? No. Nobody is going to make a cheaper car. It's not possible to make a safe car for less than $5000. It's just that rural income has to catch up, the stagnation of which is not good for the country.

One silver lining that I see is that tractor sales have been really good last year. And so has CV sales. Discretionary investment like cars have been put on hold, but the purses will be opened later this year.




To conclude, there is no doubt the Indian car market will reach 5 million/year and 10 million/year by 2030. So don't loose hope just yet!