Crisis in Auto Industry

Auto Industry Crisis:

  • The automotive industry has been facing a slowdown worldwide.
  • In the Indian case, the automotive industry was one of the fastest growing industries as well as an important driver of the manufacturing sector.
  • Contributing 7% to India’s gross domestic product (GDP) in 2018, it provided direct and indirect employment due to its forward and backward linkages with other sectors.
  • A slump in automotive sales—due to the cascading effect—thus, also affects sectors such as tyre, steel and steering manufacturers.


SIAM data:

  • The current sales of vehicles have been the lowest in the last 19 years, due to a drop in the domestic demand.
  • There was a 26% dip in car sales in May 2019 versus last year, and consequently a nearly 8% fall in overall vehicle production.
  • In 2017–18, the sales of four-wheelers, which were growing at 14% are now down to 5%, while for two-wheelers, the decline has been from 15% to 5% over the same period.
  • Carmakers have been halting production to clear inventories.
  • The effect of low demand has hit the domestic component manufacturers the worst, with many reported ­operating at around 70% of their potential efficiency level, either by adopting a staggered system of work when they want to retain their workforce, or by simply laying off workers.


How many jobs have been lost?

  • According to the latest figures that are available, original equipment manufacturers (OEMs) have removed about 15,000 temporary workers in the past two to three months.
  • A lack of working capital amid tepid demand has led to closure of nearly 300 dealerships across the country.
  • This has led to over two lakh people losing their jobs, according to the Federation of Automobile Dealers Associations (FADA), the apex national body of automobile retail industry engaged in the sale, service and spares of two- and three-wheelers, passenger cars, utility vehicles, commercial vehicles and tractors.
  • The Automotive Component Manufacturers Association of India warned in July that 10 lakh jobs were at risk and urgent action was needed to bring the industry back on track.



What does the auto industry want?

  • The auto industry has been demanding immediate government intervention.
  • Pointing out that the industry’s turnover is close to half of the manufacturing GDP, accounting for about 11% of the entire GST revenues of the country.
  • The auto sector is hoping that the government will come out with a revival package ahead of the festive season to yield benefits.
  • The industry’s demands include a reduction in GST to 18% from the current rate of 28%, which will help in an immediate price reduction.
  • It could kick-start demand in the short term, particularly ahead of the coming festive season.
  • Besides, it has sought measures to handle the NBFC crisis to infuse liquidity into the system, and clarity on policy for electric vehicles and introduction of vehicle scrappage policy, which will also boost demand for new vehicles.
  • These demands were also placed before the Finance Minister, Nirmala Sitharaman, during a recent meeting.



Source: The Hindu