Falling sales graph can be a serious concern for automakers in India as they seek government aid in the form of tax cuts

The Indian auto industry, which contributes 7 percent to the country’s gross domestic product (GDP), is in the throes of deep depression. The overall slump in economic growth, coupled with the ill effects of COVID-19 pandemic has further compounded the problem.

Passenger vehicle sales dipped as much as 18 percent in the year to the end of March 2020, one of the steepest falls in year. The novel coronavirus spread its reach across the nation bringing everything to a standstill and now automakers look towards a fall in automobile sales to the extent of 45 percent in the current fiscal.

Society of Indian Automobile Manufacturers (SIAM), with members such as Maruti Suzuki, Mahindra, Hero MotoCorp and Tata Motors along with global automakers such as VW and Toyota has sought aid from the Government of India to see the industry through this crisis.

SIAM stated that if the economy dips by 2 percent from April 1, 2020, sales of two and four wheelers could see a steep decline by 45 percent when compared to the same period of the previous year. SIAM presented two scenarios to the Government. The first is that if the economy grows by 2-3 percent, this would lead to a 20 percent decline in auto sales while secondly, if there is no growth, this could lead to a 35 percent decline in sales.

This slump in the economy has been further highlighted by McKinsey & Co who estimated that in case the lockdown in the country was extended to mid May, economy would dip by 2-3 percent while rating agency Moody’s stated that the country could see 0 percent growth.

Nearly every automaker in India has reported 0 sales in the month of April 2020 which could pick up only marginally in the current month. The nationwide lockdown was announced on 25th March which shut down all auto plants, showrooms and dealerships and in view of these constraints the auto body has sought aid in the form of tax cuts, 1 year delay in implementing safety and fuel efficiency regulations and low rate of interest on loans. This would help the auto sector to commence production and prevent layoffs at least till sales and the economy revives to some extent.

Most automakers such as Maruti Suzuki India, Hyundai, Mercedes-Benz, TVS Motor, Royal Enfield, Hero, etc have resumed production under strict safety guidelines and restricted manpower while some are yet to start as they await permissions and settlement of supply chains.