[joe1980]

I have been following up on the news on the fall of sales in the car industry in India and the associated job losses. I however fail to fully understand what caused this situation in the first place. While I'm sure that there should be a chain of events leading to the current state, I don't know or rather I would be interested to understand what was the starting point to this?

[wheelguy]

Auto sector problems are minor compared to the abrogation of article 370, says Arjun Ram Meghwal.

If Prime Minister Narendra Modi's government can extend Parliament session to abrogate Article 370, solving the problem of the auto industry which is facing a slowdown is a "minor" thing, Union minister Arjun Ram Meghwal said on Friday.

Addressing the annual convention of the Automotive Component Manufacturers Association of India (ACMA), the minister of state for heavy industries and public enterprises said issues plaguing the auto industry will be "tackled and settled".

"When Lok Sabha (session) was going on and (decision on) Article 370 had not yet come up, many MPs (parliamentarians) used to come to me and ask me if session is being extended," Meghwal said, adding many MPs didn't want extension of the session.

"By extending the session, if we can remove evil thing like Article 370 then your problems are minor in nature, it will be resolved soon don't worry," Meghwal assured executives of the automotive industry.

"We will bring your issues in front of the Finance Minister, Prime Minister and when Modi ji is aiming for USD 5 trillion economy then all these issues will be tackled and settled. You don't worry," he asserted.

Meghwal further said, "We are moving towards USD 5 trillion economy and if there is an issue in your sector, why won't we help in resolving that?" The minister also said the government would also look into possibility of extending export incentives to the auto industry.

Link

[libranof1987]

This smart man has essentially blamed everything, from the banks to the Govt., for the current state of the auto industry. He should have perhaps also given a thought to the rapidly inflating sticker prices of new cars.

A “paralysis of decision-making” in the banking sector and mandate to introduce safety features such as air bags and ABS on new cars have made them costlier and out of the reach of the two-wheeler rider, Maruti chairman RC Bhargava has said, emphasising that entry-level four-wheelers have become unaffordable to buy and maintain for the common man.

At a time when auto sales have crashed to historic lows, Bhargava also blamed higher taxes on petrol and diesel and upward revision in road and registration charges by state governments for adding to the burden of car buyers. He added that a temporary cut in GST will not make much of a difference, and can be avoided.

https://economictimes.indiatimes.com...w/71059585.cms

[FrodoOfTheShire]

Link

The local market in Aliyar, Haryana shows the fine print of the economic slowdown that has gripped the country.

Situated exactly opposite the Manesar manufacturing unit of Maruti Suzuki, the market’s economy is directly linked to the well being, or the lack of it, of the automobile major’s business.

“We have been staying here for 10-12 years but this slowdown is unprecedented. There has been a 60 percent dip in my sales. If I used to earn a rupee earlier, I only earn 40 paise now,” Kishan Singh, a vegetable seller in the market, told The Quint.

“If the current situation of the business continues, then most of us will have to shut shops,” Neeraj Kumar, a garment seller, said, adding that he will be forced to head back to his village in Bihar if his sales do not pick up in the upcoming festive season.

[imidnightmare]

Originally Posted by joe1980

...what was the starting point to this?

LONG POST. IT WILL SEEM TO RAMBLE AT THE START. (at least at the start - maybe till the end too!)

The building blocks

1. Sub-scale industries - because of decades of socialist policies
Most of our industries are sub-scale. A recent study (by McKinsey I think), showed that Indian companies start small - and remain small. They just don't grow - as opposed to peers overseas who grow faster and to much larger sizes. This is driven by our socialist framework which offers disproportionate benefits and breaks and exemptions to sub-scale sector - and almost incentivizes them to remain small. Right from the norms on tax compliance, taxation levels, scrutiny and regulatory compliance to safety, employment etc., everything is skewed in such a way that barring the really ambitious, money-oriented businessmen deliberately stop scaling up (officially at least) beyond a point.

This inhibits these businesses from growing in quality - and of course, inhibits "economies of scale". The benefits cease to accrue if your CapEx is higher than a certain level, for example. So these firms deliberately stay small, stay less automated and therefore, deliver lower quality. The issue should (I hope) be clear on this front.

2. No quality focus across the board
Now, in a vicious circle, there was historically a far greater focus on "cost" than on "quality" in our economy. Across sectors, we thrived on speaking about and talking up "Indian jugaad". It was not an insult, it was a matter of pride. People spoke about how Indians cobbled together cheap alternatives - whether by copying or otherwise. At no point was there any focus on "Are these delivering quality?" Across industries therefore, the higher-end requirements continued to be met through imports; Some examples include things like seat belt buckles, scissors, blades, steel for boilers, clean steels etc. Yet, nobody cared. To date, the quality infrastructure of the vast majority of suppliers to critical organizations in Defence, Railways, Automotive etc. are below "sub-par". They're abysmal. You see, "chalta hai". If the buyer is quality-conscious, he will install equipment and test. We will try to "manage".
Note: My firm manufactures and sells instruments used in quality labs. I know this first-hand.

3. Success in the auto sector seemed immune to this - because "duties"
Success - exemplified by MSIL - however, seemed immune to quality. MSIL churned out death-traps as vehicles and the market lapped it up because "kitna deti hai" overrode "marenge to nahi?". People accepted the trash on offer because it was cheap. Companies that tried to break this rut failed. Think of any product that came in with better safety features (at a price) for example, and you'll have thought up a failure - that crumbled against the might of MSIL. Hyundai for example, has just mirrored the MSIL strategy - and seen good returns.

4. Interest rates
I run a business and compete solely against importers. The cost of finance however, is crippling for us compared to them. Their cost of investment is a fraction of ours - and for top-tier talent, the salary differentials (nominal) are narrowing fast. Hold this thought - this will be critical. Similarly, consumer finance also has exorbitant interest rates - which are far higher than market as well as wage inflation rates. So, the cost of money is high! This inhibits high-tech firms that rely on high levels of automation coupled with high-quality talent - since the costs are not justified in India. That's why we remain a destination more for lower-end work than any manner of high-end work.

These four sum up the basics. So, what went wrong from here? Seems like it was all going so well.

The Problem Statement:
Prices have risen beyond affordability now. People can't afford the lower level offerings - regardless of the niggles they have.

WHY? Why now?
Prices rise all the time. So why have cars ostensibly even "Made in India" become unaffordable? Forget "On Road". Even "Ex-showroom" prices are just completely off the charts compared with higher-specced cars in the US, for example. So, what's the underlying cause?

1. Dependence on imports
It's easy to get misled by the belief that the car is made in "Pune" or "Gurgaon" etc. The fact is that a good portion of items is being imported - at some level or the other. Whether MSIL or anyone else, there is a massive import-dependence that isn't reported on. That adds to costs. The duties start adding up - as does the impact of exchange rates and dependence on the global supply market scenario. This is particularly true of vehicle electronics of course, but also gear boxes and a range of critical components in the car. You see...

2. Lack of adequate quality in India
The sub-scale and sub-quality infra of Indian component manufacturers ensures that when you need quality, you import. This of course, is not exclusive to the automotive industry. You see it everywhere. And in automotive, as cars get increasingly tech-heavy and regulations are increased on safety, emissions etc., the import-dependence and need for quality isn't going to diminish.

Impact:
Cars have just kept getting more and more expensive over the years. And manufacturers that chased volumes tried to reduce quality with every iteration in an attempt to manage costs. But now, they've reached a point where it's not possible to balance everything. You can't reduce quality further. Instead, they face the need to improve things. At the same time, the dollar is stronger, the global market is slowing - and yet, Indian manufacturing hasn't stepped up in critical areas. So, what's the result? Well, prices increase.

Other issues that I've not touched: The horrific absence of a clear automotive sector policy with "set-in-stone" timelines and milestones; the ludicrous optimism on the unrealistic "EV vision" and the impact of demonetization; all play a role of course, but they aren't "endemic".

What can fix it?
Short-term:
- Reduce / remove the import duties on critical parts which are driving up core costs; this is risky though, since it removes a key incentive to localize even in the future - though cost / convenience factor should help localization should expertise arise.
- Admit that this whole "all EV by 2025 / 2030" plan is bunkum and alleviate concerns about "what happens to the ICEs after this?"
- Reduce interest rates! This immediately reduces EMIs and makes things more affordable for consumers.

Long-term:
- Eliminate the incentivization for companies to remain small; encourage companies that scale up rather than those that remain small. Also, incentivize CapEx investments that help scale and quality. This is mission-critical across sectors.
- Reduce tax rates: Income tax as well as corporate tax rates must be competitive. This helps increase spending power for consumers and encourages businesses to stay legit as well as to invest! It helps attract FDI as well, of course - and bolsters the business case for foreign OEMs to localize.
- Reduce interest rates: In a global market which is increasingly automated and tech-driven, the cost of technology and talent is not too different across multiple markets. The cost of finance however, differs vastly - and can make or break a business case. Already, the power, water and infrastructure in India is sub-standard compared to even economies like Malaysia, Thailand etc. Add to it the high interest costs and no domestic maker will be able to compete in the sector. There is a critical need therefore to make the environment suitable for businesses in these areas to grow.

If you made it this far, I'm really impressed. I wouldn't have managed it, I reckon. Thanks for reading - and please don't hate me for wasting 15 minutes of your day!

[airbus]

I am just wondering if situation is so bad, how did MG Hector and Kia Seltos secure good business? Whether the manufacturers using this slowdown to bully the government to extend the deadline on mandatory emission/electric requirement?

[wheelguy]

Millennials opting for Ola, Uber, and other such services is not a contributor big enough for creating the slowdown, says Maruti Suzuki Executive Director Shashank Srivastava in an interview with PTI.

• Says, needs detailed study to arrive at a conclusion on slowdown.
• Car purchases in India are still linked to "aspirational aspect".
• Ola and Uber came into existence during the last 6 to 7 years which are the years comprising of the best performances in auto-sector. If it is Ola and Uber why is the slowdown so severe since the last few months all of sudden?, asks Shashank Srivastava.
• Quotes US as an example where sales are robust despite Uber's growth.
• 46% of car buyers are first time buyers which says that it is an aspirational behavior. Says that people may go to offices on Ola/Uber but still buy and own a car for weekend trips.
• Says that the reasons might be regulatory changes, and raising taxes & insurance expenses.
• Also says that the measures announced by GOI to tackle is not sufficient for the industry.

More at the source ET Auto.

[imidnightmare]

Originally Posted by wheelguy

Millennials opting for Ola, Uber, and other such services is not a contributor big enough for creating the slowdown, says Maruti Suzuki Executive Director Shashank Srivastava in an interview with PTI.

I agree with the basic premise that the slowdown goes beyond the Uber/Ola thing. However, I tend to ignore what MSIL people say - simply because their desired end-game is to reduce safety and pollution regulations and reduce insurance requirements and taxation on lower-priced cars alone. This clashes with how I feel the industry regulations should move. Also, comparing India's Uber/Ola ecosystem to the US is sheer madness. Also, if he is comparing, perhaps he should then look at the global auto slowdown and say "Oh! It's declining everywhere, so yeah, nothing to see or do here". His arguments are all spin and don't wash.

Measures announced by the GoI deserve criticism - but not because "they don't do enough". It's because they're misguided and several are unwarranted. Instead of sectoral policy shifts, I'd have liked to see a dramatic reduction in rates and better clarity on the EV policy, making it realistic and assuaging the concerns of the whole ecosystem - from car-makers, to component makers and the entire Lead refining and battery manufacturing industry.

[vinya_jag]

I am curious to know, what percentage of new cars are for major cities like Delhi, Mumbai, Bangalore, Chennai, Kolkata, Hyderabad. I am guessing, the number would be at least 40%.
The scene has changed, for these cities.
Taking Bangalore's case: There is rampant unplanned construction, that is causing huge choke points. So, people are chosing to stay closer to work places. Uber, Bounce, are just a swipe away, and they are all not expensive either.
For the running cost + parking spot charges (Renting an apartment with a parking spot, vs staying in a non parking spot residence), Uber is probably a cheaper alternative.

A bad, yet simple math: Personal car - 2 trips a day. Uber - 15 trips a day. So, 1 car doing 8 times, more the work

A loose parallel: E-mail blew away India Post. The next generation of mobility is possibly not as dramatic, but will change the scene in a big way

Imagine, a day, when you have no parking spots. You swipe to get a self drive in a 1 seater/ 2 seater or a 4 seater at your door step, and hop off

I feel, the Indian Car makers are not adapting to the changing scene. People don't prefer to travel anymore. Swiggy, Dunzo, Amazon are sharing more than a fair share of everyday travel.
Car manufacturers need to adapt. Bring in newer segments. Tata Nano is such a nice alternative segment, which people would throng to buy. Just that the car doesn't sound or feel so nice. We are also missing the convertible type. We are missing closed two wheeler type. We are missing Electric buses/ Vans for last mile connectivity. And more than anything else, I am missing the Zen

Another parallel: Cars evolution has been like Casette players -> Floppy -> CDROM -> DVD -> Pen Drive -> Bluray. We cannot do without these, but for most purposes, Cloud has all these available at the click of a button on your browser, at fraction of the cost.

[mxx]

I dont think there is nothing wrong in auto industry asking the government for a tax break. Because automobiles are highly taxed now - as high as 50% (or more?), even for locally manufactured cars. In good times, if they are highly taxed, what is wrong in asking for tax breaks in bad times. Add to this high taxes in fuels.

I would not have said this if the taxes on cars were used for good transport infrastructure or good public transport. Most good roads that I drive on, I have to pay tolls.

[condor]

Originally Posted by wheelguy

Millennials opting for Ola, Uber, and other such services is not a contributor big enough for creating the slowdown, says Maruti Suzuki Executive Director Shashank Srivastava in an interview with PTI.

On the other hand, Anand Mahindra had predicted it 4-5 years back that Ola, Uber & such will eat into Auto industry sales. Though I havent come across any recent statement by him recently.

[volkman10]

Maruti Suzuki is bracing for a prolonged slowdown.

Has hired consulting firms KPMG and PricewaterhouseCoopers (PwC) to advise its suppliers on how to survive the current slowdown in the auto segment.
The firms advised the suppliers on how to efficiently run their operations in such turbulent times.

the suppliers should aggressively take stock of their financial operations and focus on cash conversion cycles, convert fixed cost to variable ones and monetise fixed assets such as warehouses. They also advised the supplier to cut costs in the right places and review planned manufacturing to survive the slump.

The consulting firms also asked suppliers to have a 'clean sheet' or start re-planning for every cost item. They also urged the suppliers to collaborate with competitors to improve capacity utilisation. Re-skilling their workforce was also advised by the firms.

Link

[AltoLXI]

Originally Posted by condor

On the other hand, Anand Mahindra had predicted it 4-5 years back that Ola, Uber & such will eat into Auto industry sales. Though I havent come across any recent statement by him recently.

They have come up with alternative strategy - the cross between buying and using Ola/Uber - subscription.

Link

What is Mahindra Subscription?

Mahindra Subscription is an entirely new way of owning a brand new Mahindra SUV, without having to buy one. It is not only more flexible than traditional car ownership, but also more convenient and affordable. You can get a brand new Mahindra SUV of your choice without any down payment, insurance charges, and road tax & registration liability. You can choose Mahindra Subscription by for a single year or multi-year, as per your convenience.

If you fall in love with your SUV and want to keep it forever, you can acquire (buy) it from us at a pre-determined settlement charge.

[wheelguy]

Originally Posted by condor

On the other hand, Anand Mahindra had predicted it 4-5 years back that Ola, Uber & such will eat into Auto industry sales. Though I havent come across any recent statement by him recently.

Mahindras are still optimistic on the growth of Ola, Uber, and the likes, so they went ahead and invested in Meru recently. They are looking forward for forging and strengthening partnerships with Ola. Wise moves, if auto sales grow they will win, and if ride-hailing apps grow then also they will benefit from it.

Instead of ranting on the slowdown, they are investing where there is scope for growth. Wise, isn't it?

[SpideyBoy]

Originally Posted by wheelguy

Instead of ranting on the slowdown, they are investing where there is scope for growth. Wise, isn't it?

Is it really??





Image Source: AutoPunditz