Automobile Industry, Stuck In Reverse!

The Automobile Industry in India is in the chokehold of a slowdown that began about a year ago. A revival seems some distance away.

- Prerna Lidhoo

About 7 km from the Delhi-Haryana border on the Old Palam-Gurugram road sits one of the two main manufacturing plants of Maruti Suzuki India. It is a hive of activity: trucks move in and out of the 300-acre plant; workers clad in blue change shifts at exactly 3 pm. On an average, India’s largest carmaker by sales produces around 5,500 cars a day at its Gurugram and Manesar plants in Haryana. Well, it used to. The company cut production by a third in August from a year ago—the seventh straight month of production cuts. Total domestic sales for the month fell 36% year-on-year to 94,728 units. Production was also suspended on September 7 and 9.

The trend is not restricted to Maruti Suzuki. The automobile industry in India is in the throes of a slowdown that began almost a year ago. India’s second-largest carmaker Hyundai Motor India reported a 17% fall in domestic sales in August, and Tata Motors’ sales slumped 49%. Commercial vehicles major Ashok Leyland reported a sales drop of 50%. Add exports and the fall is a steep 357.14%. It suspended operations at five of its plants for 10-18 days. Even two-wheelers, the second-largest segment after passenger cars by volume, have been seeing a big decline in sales.

“I have seen quite a few downturns in the industry,” says auto industry veteran Murad Ali Baig. “But I haven’t seen anything quite as bad as this.”

A year and a half ago, the picture was entirely different. A Nomura report released in July 2018 reckoned that the auto industry was likely to have a great year (FY19) with “healthy double-digit growth” across all segments. “We believe strong demand environment will lead to pricing power and operating leverage benefits for companies, thereby supporting margins despite rising commodity costs,” it said. The irony? Sales of passenger vehicles fell for the first time in nine months that July.