Five Reasons Why Indians Aren’t Buying Enough Cars

Cars sales in April 2019 crashed nearly 20 percent compared to the same month a year ago. Here’s why.

Changing market conditions and the rising cost of raw materials, as well as compliance with new safety norms are pushing up car prices.

Photo: AP

It is a pretty gloomy time for the automotive industry in India. The new financial year has gotten off to a dismal start, with overall passenger car sales declining 19.93 percent in April 2019 compared to the same month a year ago, according to data from the Society of Indian Automobile Manufacturers (SIAM).

Only 160,279 passenger cars were sold in April 2019 as compared to 200,183 vehicles sold in April 2018.

The reasons for the sharp decline in car sales is multi-fold. From uncertainty in the political climate to oil prices, there are many reasons people have been deferring or avoiding buying cars. Here are some of the reasons.

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Rising Crude Oil Prices

Crude oil prices have been steadily rising, increasing nearly 34 percent this year itself. Prices are hovering around $72 a barrel now, up from $59 a barrel in January 2019. However, there hasn’t been a spike in fuel prices in the past few weeks as prices have been kept stable in view of the general elections. There had been a steady rise in fuel prices between January and April.

But buyers are wary of a spike in fuel prices once the election season is over, which has affected buying decisions.

Political Uncertainty Due To Elections

It’s not just crude oil prices, but an overall uncertainty about automotive policies that have affected consumer sentiment. Where will loan interest rates go? Will GST rates be changed after the elections? What if the government changes?

These are some of the questions playing on consumers minds, which is why they have been putting off car buying decisions till after the general elections. There’s also uncertainty over agricultural policies and monsoon predictions that are affecting sentiment.

Improved Models Coming with New Safety Norms

April 2019 also marks the beginning of new safety norms for Indian vehicles that are being implemented in a phased manner. All new cars sold now have to come with ABS and airbags as standard fitment. By July 2019, all cars will have to have seat belt warnings, speed warnings and reverse parking sensors.

By October 2019, all new cars will have to meet Bharat NCAP crash test safety norms. Due to this many car makers are rejigging their models to meet the new standards. And by April 2020, all cars will have to meet BS-VI emission standards. Many buyers are putting of their buying decisions in anticipation of newer, improved models coming in.

Higher Insurance Costs

The insurance rules in India for automobile insurance were tweaked last year. Since September 2018, following a court order, all general insurance companies have to issue a three-year third party insurance cover for new cars and five-year third party insurance cover for new two-wheelers.

Comprehensive insurance can be for either one year, three or five years, but third party insurance is mandatory. This has lead to an increase in the on-road price of cars, again leading to buyers deferring

Drop in Demand for Diesel Vehicles

With the new BS-VI emission norms coming into effect, the price of diesel cars is expected to increase substantially. Currently, diesel vehicles cost about 15 percent to 20 percent more than their petrol counterparts, but with the new norms, this could go up further.

Furthermore, markets like Delhi have restricted the registration of diesel vehicles to just 10 years, while petrol vehicles get a 15 year registration.

And with fuel price difference now down to just Rs 5 per litre between petrol and diesel, the economic viability of diesel is dropping. Market share of diesel cars has dropped from more than 50 percent in 2012 to just 22 percent this year.

Metros will see growth slow down a bit, because shared-mobility services have become efficient, removing the need for multiple car ownership. However, tier-2 and tier-3 cities will see better uptake.

Overall demand is expected to be sluggish for the next few months, but will see a pick up towards the festive season as new cars hit the market.