Demonetization hits auto industry, sales decline to lowest in 16 years

Demonetization hits auto industry, sales decline to lowest in 16 years

The scrappage of notes of denominations INR 1,000 and INR 500 has taken the nation by storm. The sudden announcement made by Prime Minister Narendra Modi on 8th Nov, 2016 threw citizens into a quandary and even though this would be a short-term impact, its ramifications would be felt throughout various sectors.

In the automobile sector, the scrapping of INR 1,000 and INR 500 notes has had a huge effect. In the month of November itself the bookings were down 50%. The results for December 2016 have come out and they are even more shocking for the auto makers. Vehicles sales in India are down to a 16 year low.

Maruti Baleno sales boom

For Dec 2016, vehicle sales declined to 1,221,929 units. This is a 18.66% decline. India last reported these kind of vehicle sales back in December 2000. Dealerships across the country have reported a drastic dip in walk-ins and inquiries, in both urban and more particularly in rural areas. Business in Gujarat, Punjab and NCR has been more affected with buyers in these regions preferring to make payments by cash.

Customers opting for finance options also make down payments in cash which has hence brought down sales considerably. This drastic dip in demand is even more pronounced in the luxury car market. In rural areas, sales of automobiles have dipped by around 40% and are expected to go down 60% as the cash crunch continues and as most farmers prefer to make payments by cash.

Hyundai Creta Stolen from dealer (2)

To boost sales, auto dealerships have been introducing various schemes. On the spot discounts to customers and hefty incentives to company sales teams who convert inquires to sales have also been offered. The dip in sales has also prompted auto manufacturers to bring down production.

Honda Motorcycle and Scooter India have stated that production is being rationalized to control inventories while Honda Cars India is also said to align production to contend with slower sales. Maruti Suzuki and Hyundai India have also cited notable dip in demand but have yet to confirm whether they will be putting brakes where production is concerned. Besides automakers, component suppliers too have been hit by demonetization and have been adjusting production to tackle the situation while the situation is worse for the second hand car market and service stations.

New currency notes.

Earlier it was thought that demonetization will effect largely the expensive cars. But that is not the case. From affordable two wheelers to expensive cars, the entire segment has been affected. At the same time, it is to be noted that this is a welcomed move by the government and a bold step in weeding out black money. It will have adverse effects in the short term due to inconvenience caused to citizens but will be a major leap in cashless economy and Digital India and will bring about more transparency into the system in the future.

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