Regulatory changes, new emission norms and the impact of the cash crunch are just some of the issues the Indian automobile industry has to grapple with in 2017. And automakers are hopeful that new launches will bail the industry out, like it did last year.
2016 turned out to be a year of major speed breakers. The industry bore the brunt of the ban on diesel cars and sports utility vehicles with engines of 2,000 cc and above in Delhi-National Capital Region. The brief ‘joyride’ from April to October ended rather abruptly with the government’s demonetisation drive at the start of November.
Auto shipments fell sharply in the ensuing cash crunch and the impact is likely to last for longer than initially estimated.
Analysts BloombergQuint spoke with expect dispatches to decline further in the coming months as automakers seek to match supply with slowing demand.
Add to it the uncertainty surrounding the implementation of the Goods and Services Tax, and the picture is expected to be sketchy in 2017, said Abdul Majeed of PricewaterhouseCoopers.
“We could expect a lot of knee-jerk reactions to policy changes, with some examples like the proof of furnishing details of having a parking slot for purchase of a vehicle,” Majeed explained.
Analysts unanimously agree that even if things were to improve in the second-half of 2017, the first three months will be very uncertain for small cars, commuter segment two-wheelers, and luxury car segments.
The impact of demonetisation will continue for a while, particularly in used cars and luxury vehicles. For used cars, a considerable chunk of the margin money is paid in cash, and for luxury cars, people would want to avoid buying as they wouldn’t want to draw attention.Kumar Kandaswami, Senior Director, Deloitte India
Rural dispatches will continue to remain muted for at least the first half of 2017, said Kandaswami, but he expects sales in urban areas to return to 2016 levels in the short to medium term.
Regulatory Changes
The Bharat Stage-IV emission norms for commercial vehicles kick in from 1 April, and that may lead to some pre-buying, to avoid additional costs, said Majeed, a view not completely shared by Kandaswami who believes that the adequate heads-up given by the government means a significant uptick in sales is unlikely.
Greater mandatory safety features like anti-locking braking systems and dual front airbags for passenger vehicles may also be introduced from 1 October which, going by estimates from auto companies, is likely to push prices higher by Rs 20,000. The verdict is still out on whether this could trigger a similar round of pre-buying as some analysts said the fineprint remains sketchy.
The Road Transport and Safety Bill, which would bring about the mentioned changes, has been pending in Parliament for some time now.
The Centre is also considering financial incentives to those willing to discard their old vehicles, Majeed said, adding that 2017 could see the introduction of such a plan. Such a scheme was expected to boost sales of new cars to an extent, but issues like what happens to the scrapped cars are yet to be resolved.
Exports
Beyond-the-border dispatches may not improve significantly in 2017, as economic conditions remain fragile in importing regions like Africa, South America, the Middle-East and developing nations in South Asia.
New Launches
The only silver lining in the face of regulatory and other hurdles could be the spate of new launches planned for the new year. In 2016, wholesale sales of vehicles during November slumped across most categories. Only some manufacturers with new launches and a resulting waiting period were spared.
The ones that managed to scamper through included market leader in the passenger vehicle category Maruti Suzuki India Ltd, which has a long waiting period for two of its models – Vitara Brezza (compact SUV) and Baleno (hatchback).
Car manufacturers have a long list of vehicles ready for launch in 2017. Maruti Suzuki is set to drive in three new cars, while Tata Motors Ltd will start delivery of the Hexa crossover from January. Foreign car makers like BMW AG, Volkswagen AG, and Audi are also ready with their new offerings.
Two-wheeler manufacturers too have a long list of motorbikes ready to hit the road in 2017.
Automobile companies hope that armed with these new offerings they can steer through the regulatory and cash constraints that may come their way in 2017.
This article was originally published in BloombergQuint.
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