The slowing economy and weakening consumer sentiment will continue to weigh on auto sales and the marginal improvement seen in December quarter, driven by festive discounts, is unlikely to sustain, a report said on Wednesday.
The GDP growth slowed down to 6.1 per cent in 2018-19 and is projected to hit a 10-year low of about 5 per cent in 2019-20, primarily due to falling consumer demand and poor financing options for high-value items like automobiles.
“Slowing growth and weak consumer sentiment will continue to weigh on auto sales and the marginal improvement seen in the December quarter driven by festive discounts is unlikely to sustain,” Fitch said in a report, without stating when the volumes will begin to pick up or how long the slump will persist.
Vehicle sales have been hampered by weak consumer sentiment and still-weak availability of financing following tighter liquidity at non-banking lenders since the middle of 2018. The sector also faces additional challenges from the adoption of stricter emission standards from April 1, the report said.
Automakers could also face production disruptions if the novel coronavirus outbreak in China leads to a prolonged halt in supply of required auto components, as the industry sources as much as 27 per cent of its demand from China worth around $5 billion, according to many analysts.
Many auto original equipment manufacturers (OEMs) like Mahindra have warned that if the Chinese epidemic lasts beyond February and if the supplies don’t normalise by early March, the transition to BS-VI will be a challenge and they may have to move the Supreme Court to get some concession to sell BS-IV models beyond April 1 deadline.
In fact, Mahindra was on record saying if the epidemic lasts beyond this month, as much as 4,000 BS-IV models will be hit as it sources two critical components from China.