Indian auto industry stands 4th largest in the world but looking at the current market scenario auto sector is in transformation mode. The vehicles maker has seen a 25-35% of downfall in the last 2 decades we can say whenever there is a slowdown in economic growth the impact is mirrored in the automobile industry.
The automotive industry is going through a lot of changes at the moment. To encourage the auto industry government is allowing 100% FDI under automotive routes.Post GST truck & CV movements have improved by anywhere between 30-40% due to removal of hurdles at border checks. This has improved existing vehicle utilization by 30%. Government has also increased the allowable tonnage load by 25%, if we consider both this factors have improved commercial vehicles utilization by almost 50-60%.
Considering regulation change from BS4 (Bharat Stage 4) to BS6 (Bharat Stage 6) with effect of (w.e.f) from 1/4/2020 will have negative impact on consumer demands to buy BS4 vehicle at this stage due to fear of severe penalty. Further, this will affect resale value of BS4 vehicles post 1/4/20. Indicating towards a direct uptick in CV if companies get BS6 ready vehicles out into the market before 1/4/2020. Moreover, a higher budget has to be allocated to BS6 vehicles, which will lead to requirements of funds at an affordable interest rates to spur growth. Government easing the norms for PSBs lending to NBFCs will help directly.
With regards to passenger vehicles, if also has BS4 to BS6 financing challenges as mentioned above, in addition to it there is a spike in the insurance cost from 1 to 3 years at the time of buying. Also, some states have spiked registration charges. In urban areas, with metro penetration improving &ola/uber becoming easily usable, car as a mean for daily commute is reducing drastically, the demand for car to be used on weekend is increasing but people are preferring more of SUVs rather than hatchback or sedan.
In rural areas, hatch back & sedan will continue to be in good demand due to pricing and financing issues, but issues mentioned above will persist there too.Auto industry has met with regulations, policies & demand estimation and planning headwinds all at same time hence the turmoil is there. Need of the hour is to trust the industry capabilities as mentioned earlier which is amongst the best in the world, it will surely fight back.
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