Prolonged recession in passenger vehicle industry, started in later half of 2018 due to several headwinds, like, fuel price hike, interest rate hike, insurance price hike, election results uncertainty, has now turned for the worse, due to financial sector crisis and overall demand-consumption slowdown.
2019 by far, has been worst year for PV industry.
Compare to Q1 & Q2, Q3 usually remains a lean season owing to monsoon. But due to financial and lending sector crisis, Q3 2019 has been in terrible shape.
All the progress made by the industry since 2014 has been completely reversed, for now.
Every other manufacturer is suffering due to downturn, including luxury car makers. Some have to undergo little less pain, due to new product launches lined up for launch in 2019.
- MUV : has shown some growth in otherwise struggling market condition
- SUV : off- late it is also struggling
- Hatchback : worse than industry
- Sedan : unarguably in worse situation
MUV Segment is still growing
Volume change over 2018
- Bigger, next-gen Eritga, with more powerful engine, has a very strong value proposition
- What is also helping Ertiga and XL6, is clever price positioning in sedan’s territory
Is BS6 anxiety leading to slow down?
BS6 emission norms will come into effect from 1st April 2020, post that manufacturers cannot produce or sell BS4 compliant cars in India.
This also led to anxiety among the potential buyers, as what will happen if they buy BS4 cars now, and, Government or Judicial body, through another regulation may ban the usage in, say, next 10 or 15 years. This might have led them to defer their purchase decision.
Though some also consider this as a major factor of slowdown.
However, reality looks little different though. New entrant – MG, still has BS4 cars on sale in India as per media report.
Source : Autocar 4th Jul 2019 12:50 pm
Despite having BS4 engine, every month, MG is able to sell more Hectors. It is largely due to very aggressive pricing, making it a great value for money offering. So new entrant instead of expanding the segment size, has eaten into competitor’s pie.
Moreover, post BS6 implementation, every manufacturer will raise the price due to additional hardware, software and development cost of BS6 engine. Due to price elasticity of demand, it will adversely impact the growth, further.
Indian economy is largely struggling with overall consumption-demand slowdown. This is clearly reflecting in quarterly GDP growth rate, which has nosedived since Q2 2018. Below illustration shows how PV growth rate follows the cues from GDP growth rate.
Amidst a slowdown in economy, consumers are spending on need-based purchase and are mostly holding back on discretionary spending. New car purchase (depreciating-asset) being a discretionary spend, is suffering too. In challenging economy, need-based car buyers may also head to used-car market, for right bargain.
Given the current state of manufacturing sector, Q3 GDP growth data will not be that good either. Recent Corporate tax rate cut may help companies to grow their bottom-line (profit) but may not help much with top-line (revenue).
Excess profitability may not restart investment cycle because there is less demand. Fiscal stimulus on supply side may not revitalize demand cycle.
What is more worrying, is India losing its status of fast growing major economy. Global factors and trade-war has impacted many other global economies, but Indian economy is facing worse, than one can imagine.
Data Source: https://tradingeconomics.com/ (04.09.2019)
India growth story was, and has always been about the growing middle class and the consumption. To put it in right perspective, it is always about reaching to China’s per capita income level, as India and China have similar population size.
(The article is written by Rohan Rishi. You can connect with him at email@example.com)