Is The Indian Auto Industry Driving To Brighter Times?

This Diwali is brightening up more than just homes; it is lighting up India's automobile showrooms too. The automotive industry received an unexpected gift: revised GST rates ahead of the auspicious eve of Navratri. These rate cuts brightened affordability across vehicle segments, turning what's already the most auspicious buying season into an extraordinary celebration of mobility and prosperity. And that gave automobile manufacturers more reason to cheer. For instance, Maruti Suzuki India received a "best-ever" booking level of four lakh bookings (that’s a lakh of bookings a week!) for its models within the first month after the announcement of the revised prices of its cars on 15th September.

In what can also be seen as GST 2.0’s impact on affordability, the contribution of entry-level small cars to Maruti Suzuki India’s overall volume grew from 16.7 per cent pre-GST 2.0, to 21.5 per cent now. Even as the average price of an automobile is on an upward trend, and the SUV wave is on the rise, the company believes there’s still scope for the humble small car to co-exist. 

“There are many customers who want to upgrade from a two wheeler to four wheeler So, if we are able to provide them a good mobility solution, they can upgrade,” says Partho Banerjee, Senior Executive Officer – Marketing and Sales, Maruti Suzuki India.  

Source: JATO Dynamics

Along with rising car prices, the bottom of the pyramid car models have also been facing a declining trend due to the growth of the organised pre-owned car industry, according to Ravi Bhatia, President and Director, JATO Dynamics India, who’s had stints in major OEMs too. 

“We used to say that if you have to improve the car market in India, you have to put the person in the first (new) car. But now, the first car can be a used car also,” he says.

For India, which surpassed Suzuki’s home market Japan to be the world’s third largest car market, enhanced affordability will also help drive up the current per capita ownership level of 35 cars per 1,000 population in the country.

Source: JATO Dynamics
*Others include - MPV, Coupe, Convertible and Wagon

Applauding the positive direction that the post GST.20 has further fueled, an industry expert also opines that “price suppression is only one side of the bargain”. The other side of the bargain is, a large number of customers should have enough disposable income. It is to be noted that the International Monetary Fund (IMF) revised India’s GDP growth forecast for this year to 6.6 per cent, from 6.4 per cent, but expects a lower 6.2 per cent next year, with the US tariff impositions being a major factor.

Festive Season Cheer

For many dealerships, the ongoing festive season had a bumper start. Some reported the best-ever opening day for Navratri. Federation of Automobile Dealers Associations (FADA), India’s premier association for automobile dealers, estimates that 11.56 lakh automobiles were retailed during the nine-day Navratri period.

This Diwali-loaded October is expected to see an all-time high monthly sales. A good monsoon, and a healthy Kharif crop season this year meant a healthier rural economy. And this was reflected mainly in the two-wheeler market. Data from the Society of Indian Automobile Manufacturers Association (SIAM) shows that two-wheeler despatches to dealerships grew 6.7 per cent (9.1 per cent for scooters) during September. 21.6 lakh units were shipped by two-wheeler OEMS in the country last month.      

With the Rabi crop season, which starts this month, expected to be healthy too, dealer principals like Nikunj Sanghi have reasons for business to be bullish. 

“A good monsoon, the rate cut in GST, I think both of them definitely auger well for the automotive industry. So, in the longer term, it should do well,” says Sanghi, who’s also a past President of FADA. He expects growth this festive season, though not a huge one.

During the main festive months of October and November last year, over 60 lakh vehicles were registered in India. This year, that figure is expected to be surpassed during September and October. 

However, there’s also a major concern looming large in the mind of Sanghi, and fellow dealer principals. And, that’s the concern over a potential loss of ₹2,500 crore or more, which they paid to OEMs, because their accumulated compensation cess credits lapsed with the new GST regime. There have been discussions between FADA and various Government authorities, but the issue hasn’t been resolved yet. A legal recourse by the dealership fraternity may be on the cards as a last resort.

But for now, the entire automotive industry is focused on the positives, and going all out to deliver as many vehicles as possible this festive season.