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Automotive Product Finder Magazine | Will second half be better
Will second half be better
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According to reports, the aggregate revenues of listed automobile players have dropped by 25 per cent in the second quarter. The overall macro picture does not look bright either. While India’s GDP growth rate has slowed down to just 5 per cent for the first quarter of the fiscal year, the Index of Industrial Production (IIP) for the month of August contracted by 1.1 per cent - a seven-year low. To make matters worse, the core sector which comprises key sectors such as electricity generation, mining, petroleum, cement and steel among others contracted sharply by 5.2 per cent in September.
The government was banking on the revival of automotive industry to revive industry sentiment and had announced some measures in August and September to boost sales.
While the passenger vehicle (PV) and two-wheeler segments did see some sales boost (low single-digit sales growth) this festive season, there was little respite for the commercial vehicle (CV) segment. Though the October 2019 sales figures of all the automakers are not out yet, major CV makers, according to industry observers, are expected to report a decline of around 20 per cent in sales volumes in October. Reasons for subdued CV sales are economic slowdown, increase in axle load (30 per cent additional capacity), and weak freight rate among other things. However, continued production cuts by original equipment manufacturers (OEMs) in the past few quarters have led to an inventory correction (of 30 to 35 days) in the CV segment.
According to Acuite Ratings & Research, Indian auto sector’s contribution to the GDP in the current fiscal may come down to 7 per cent from 7.5 per cent in 2018-19 with overall revenue of the original equipment manufacturers (OEM) expected to dip by up to 6 per cent in 2019-20. Revenue of the automobile industry is expected to decline from Rs 3.35 trillion in 2018-19 to Rs 3-3.2 trillion in 2019-20.
Decline in revenue and sales of auto makers directly impacts the auto ancillary players and dealers as the sector follows push model, wherein the OEMs drive the entire automotive ecosystem. The slowdown in auto sector has also some rippling effect in warehouse leasing. Leasing of warehousing spaces by automobile companies have declined by more than half during the first nine months of this calendar year.
While it is very difficult to forecast growth in the auto industry, one could see some green shoots in demand. Some of the demand drivers like the freight availability after monsoon is looking up slightly. Amid a slew of relief measures announced by the government, some fund disbursement to infrastructure projects took place; this is expected to generate demand for vehicles gradually. Preponement of purchase decision is anticipated in second half of the current fiscal before transition to BS VI emission norms.
Clearing the bottlenecks, making available low-cost credit to both consumers and companies with staggered repayment options could also help clear the big backlog in automobile inventory.
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