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The real reason behind decline in car sales in India

August 12, 2019, 05:52 PM IST by Nikhil Puthran
The real reason behind decline in car sales in India

The year 2019 has not exactly been profitable for car manufacturers in the country and sales have only been on the decrease since the last few months. This can be seen in commercial and two-wheeler segments as well. To get a better perspective of the reason behind the slump sales of the auto industry as a whole, I got an opportunity to interact with Basudeb Banerjee, Research Analyst - Automobiles and Auto Ancillaries, Ambit Capital. The 60 minutes interaction covers three aspects – reason, solution and what to expect. Read below to learn more –

Main reasons behind the decline in vehicle sales 

There is no denying that vehicle sales in the country have witnessed a considerable drop in sales. With that said, the drop in sales is not as steep as seen in reports. There has been a constant stock correction activity from January 2019 by manufacturers to help dealers clear the unsold stock. Other reasons behind the decline in vehicle sales are multiple hikes in GST rates, fuel prices and vehicle registration cost. Apart from this, liquidity issues in semi-urban markets and high rate of interest have compelled the potential buyers to put their plans on hold. 

Another reason pointed out by the industry analyst as well as a dealer from the south was weaker consumer sentiments. Customers are possibly waiting for a cut in GST or expecting a better bargain over the next few months. Moreover, large scale infrastructure development across major cities has also weakened sentiments as car buyers are considering alternative modes of commuting such as public transport or booking cabs from app-based aggregators to avoid driving in city congestion. Another factor for the decline in vehicle sales is a lack of major product launches in the affordable segment. 

Solutions to improve sales     

As suggested by industry experts, vehicle manufacturers in the country need to focus on building positive consumer sentiment by offering lucrative features at a competitive price. Vehicle manufacturers need to launch more products under the Rs 12 lakh price bracket and work with financial institutions to provide better financing schemes. The Indian government can help by reducing the GST and creating acceptance for the leasing model.

Good deals in the festive season will also help boost vehicle sales in the country as a majority of buying decisions are driven by auspicious beliefs. 

What to expect in the next few months?

As revealed by the industry analyst, inventory de-stocking will continue for at least two more months, after that, there will be a period of six to nine months of consolidation. New car launches in the second half of the financial year 2021 will put the industry on six to eight per cent growth path.

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