The industry has said that even reaching the sales achieved in 2018-19 will take at least 3-4 years, and new investments will now take a back seat due to excess capacity in the market.
Even as sales seem to be reviving across certain segments such as two-wheelers and some categories of cars on a sequential basis, Siam (Society of Indian Automobile Manufacturers) feels it is more of a case where previously-booked deliveries are being made and some additional numbers added due to pentup demand as April was completely shut.
“Otherwise, it’s a grim situation. We are in a very, very difficult time period,” Siam president Rajan Wadhera said. While sequentially (May 2020 vs June 2020), a large number of companies (such as Maruti, Hyundai, Hero MotoCorp, Kia, and Toyota) have seen encouraging growth, the numbers are nowhere close to the levels achieved in June last year when compared year-on-year. Wadhera said “high taxation” remains one of the pain points, and claimed the government earns more through GST than what the industry’s margins are. “While the government charges GST between 28% and 60% across different vehicle categories, profitability of companies is only between 3% and 9%.
It is around 3% in commercial vehicles, while for two-wheelers it is around 9% and passenger vehicle makers have around 5-6%.” He said it is not possible for companies to offer more discounts as their costs have already gone up due to Covid safety requirements, both at factories and at dealerships. Wadhera said that the capacity of companies to make new investments will be limited as they conserve cash, while also being saddled with excess capacity due to lower sales.