The Indian automotive industry will take a long time to recover from the pandemic

The sales figures for March are in, and the year-end usually used to see a lot of deals as dealers and manufacturers tried to clear their stocks. This March has been a bloodbath though. With dealerships effectively closed from the middle of the months and footfalls having dried up even earlier, the best that can be said about the sales figures is that they’re not pretty. And where next for the industry? As long as the lockdown continues, and we should be aware that even if the lockdown is not a ‘total’ one, it might be several weeks before ‘business as usual’ resumes, one will wait and have to watch to see how demand reacts.

It is likely that newer models will continue to do well. But after a global crisis, it is human nature to hold onto resources particularly cash so discretionary spends will evaporate for a while. That said, the ‘great Coronavirus migration of 2020’ as we will describe the events of late last week will likely mean that there will be a shortage of auto and taxi drivers in many parts of the country, which might actually drive more people to own personal transportation. Conversely, as the very concept of working has changed, millions of office workers have realised that working from home is a viable option. This will lead not only to an interesting situation for commercial real estate but also for daily commuters. Maybe the types of cars people need and want will change, smaller hatchbacks might do fine as commuter cars.

That said, time and time again whenever there has been a sustained downturn, it has emerged that newer models always tend to do better than older ones. Expect cars like the Creta and possibly even the new Honda City to at least make a slight mark on sales. Older models always tend to do a bit worse but with demand changing, one expects models like the Ertiga and XL6 to continue to do well, or as well as one can do in the circumstances.

But let us be honest, sales will not recover for a while. Indeed it might take several months for the shocks to the supply chain to recover. The migration of workers from factories in the industrial heartlands of the country might not impact the car manufacturers directly, as their line employees tend to be better paid. However, it will impact companies that make ancillaries and components. It is almost certain that even if the lockdown is lifted on April 14, it might take weeks before internal travel restrictions are lifted. And that assumes that demand for products also goes back to normal quickly.

Indeed, it is in the government’s interest, that is the central, state and local governments to get the economy back to normal as quickly as possible. That will involve getting consumer spending going. It is not of much help if interest rates go down, but consumers do not bite. Ergo, I feel that it would be in the government’s interest to reduce excise duties for cars, maybe not by much, but even a five per cent cut would reduce prices at least by Rs 10 to 20,000 for hatchbacks and compact sedans. And consumers will bite if they see a good deal. I know that reducing taxes on products like cars might be anathema to fiscal policy experts, but if coupled with the car companies offering deals, if prices go down Rs 30,000 to 40,000 for cars, at least some consumers will go back into showrooms. Heck, offer a slight reduction on luxury cars as well, if demand picks up in the sector, the revenues earned from increased sales and more jobs will be much more than the revenues lost.

The auto industry does not only keep the stomachs of automotive journalists well-fed, a whole ecosystem that comprises almost a fifth of the entire economy depends on it, from petrol and diesel sales, showroom staff and transporters. It is in the government’s interest to revive it quickly and it does not need to pour money to do that. It needs to forego some potential money but if a rate cut can come with an end date, say the end of December, it could provide a spur that could save 2020 for the automotive industry. Alas, if only government officials and politicians thought like that, but if the economy has to pivot to job preservation, they will have to think in such ways. Till then stay safe, and if you have a car, do remember to start it up once every 10 days to ensure the battery and fuel systems stay running. Also think about releasing the handbrake and using stoppers (or bricks) for your tires.