India's car makers are hoping for a miracle as festive season starts at a new low

• For the month of August, Tata Motors saw a massive decline of 58%, Maruti Suzuki’s sales fell by 33%, Mahindra & Mahindra fell by 25% while Honda’s fell by 51%.
• Auto companies have all been cutting production to align with the tapering demand.
• But the industry is hoping for better growth with the government’s recent push where any vehicle that is bought from now until March 2020 will be eligible for 30% depreciation.

As talks about the slowing Indian economy simmers on social media, there is one sector that has been facing the wrath for over 11 months now – the auto industry.

Most auto manufacturers reported their worst sales for the first quarter in a decade, and the trouble seems to continue. Tata Motors, Maruti Suzuki, Mahindra & Mahindra and Hero Motocorp have all cut production to align with the tapering demand.

Falling sales for top manufacturers

Indian auto manufacturers have reported a continuous decline in sales for over 11 months now. In August, Tata Motors saw a massive decline of 58%, Maruti Suzuki’s sales fell by 33%, Mahindra & Mahindra fell by 25% while Honda’s fell by 51%.

For Maruti, a 71% drop was seen in the sales of its mini car segment (Alto and old WagonR) in August alone.


“My belief is that we are near the bottom of the downward cycle and the economy, and car sales should start to accelerate in the near future,” Marutii Suzuki’s chairman RC Bhargava said at the company’s annual general meeting earlier in August. Maruti Suzuki also slashed 3,000 contractual jobs.

Meanwhile, Tata Motors too agreed that it’s ‘challenging’ time for the industry.

“Subdued demand sentiment due to poor freight availability, lower freight rates and general slowdown in economy continued to hamper the commercial vehicle demand. System stock reduction through retail focus and aligning production, will continue to be our approach, while cautiously monitoring the market, in these challenging times,” said Girish Wagh, President, Commercial Vehicles Business Unit, Tata Motors.


Increased production costs with BS VI norms

The troubles of auto manufacturers are far from over. Auto manufacturers also have to comply with BS-VI norms by March 2020. After this, the sale of older models will not be allowed, which is not good news for those holding onto huge inventory. It also means that the car companies have to invest in switching technologies.

“The additional components and design changes will raise production costs by 10%-15%. This could squeeze automakers' profitability in FY21 if automakers are not able to fully pass on costs to buyers,” said a report by credit rating agency Fitch earlier in August.

Festive season coupled with government’s push brings hope

This month, Tata Motors sold just over 7,000 passenger vehicles. They are now desperately hoping that the upcoming festive season to revive sales with special offers, and several special editions to their current cars. Maruti Suzuki also launched its latest offering – XL6 in August.

They are also trading sights on the government for help.

Finance Minister Nirmala Sitharaman too recently announced much needed changes for the auto industry. “BS-IV vehicles purchased until March 30, 2020 will be allowed to run on the roads for the duration of the registration," the Finance Minister said.

Any vehicle that is bought from now until March 2020 will be eligible for 30% depreciation, double that of the current rate of 15%, she said. Added to that, the government itself made the first move and decided to replace their own old vehicles, throwing its own austerity measures to wind.