Automakers Are Struggling To Overcome The Sluggish Demand And Policy Changes

Automakers are struggling to overcome the sluggish demand and policy changes

- Nachiket Kelkar

India’s passenger vehicle industry has long been the toast of the economy. In January, it overtook Germany to become the world’s fourth largest PV market by volumes, after China, the US and Japan. Consulting firm McKinsey has predicted that India would become the third largest market by 2021.

The industry, however, seems to have hit an unexpected bumpy stretch, forcing automakers to hit the brakes. Maruti-Suzuki, which makes every second car sold in the country, saw its domestic sales in April slump 19 per cent year-on-year to 1,34,068 units. Its closest rival, Hyundai Motor, fared no better, reporting a 10 per cent decline in sales to 42,000 units in the month.

The two-wheeler market also has hit the slow lane. Hero MotoCorp, the country’s largest bike-maker, plunged 17 per cent to 5,74,366 units last month. Honda Motorcycle and Scooter registered a sharper decline of 31 per cent, and Royal Enfield reported a 17 per cent decline.

There are many reasons for the slowdown. Most automakers raised prices in January as raw material prices were on the uptrend. From April, new safety norms for two-wheelers became mandatory. All motorcycles and scooters above 125cc are now required to have anti-lock braking system, and smaller displacement vehicles (up to 125cc), a combined braking system. This has pushed up two-wheeler prices by 1,000 to 10,000.

A bigger blow was dealt by the Insurance Regulatory and Development Authority of India, which made long-term third-party insurance mandatory for car (three years) and two-wheeler (five years) purchases last September, after a Supreme Court order. A personal accident cover for the owner-driver, worth 750, was also made mandatory. This pushed up the overall insurance premiums for new car purchases by 5,000 to 20,000, depending on the model. For two-wheelers, the insurance premiums have gone up by 1,000 to 10,000, depending on engine capacity.