The Declining Growth of Automobile Dealers in India: Reasons and Implications
The recent slowdown in the growth of automobile dealers in India has been a topic of considerable interest, especially as the country approaches major festivals like Durga Pooja and Diwali. Factors such as the impact of auto loan systems, the implementation of BS6 norms, and the advent of electric vehicles (EVs) have all contributed to this growing trend. This article delves into the reasons behind the decline in automobile sales and the subsequent contraction of the industry, examining both economic and behavioral factors.
Declining Auto Sales and Its Impact on Dealerships
Traditionally, automobile dealerships in India have relied on robust sales volumes to maintain profitability. However, as the industry experiences a decline, dealers are facing significant challenges. The average sales growth in automobile dealerships has been fluctuating, with notable peaks in 2018 and 2019. For instance, in 2016 and 2017, the growth rate reached 120%, while in 2018, it soared up to 150%. However, as of 2019, this growth has seen a dramatic decline, with projections indicating sales could drop to between 50% to 100% of previous levels. This trend reflects a saturation point in the market and an increased awareness among consumers about the availability and benefits of loans.
Economic Factors Contributing to the Decline
Bubble Phenomenon:
Economic bubbles, whether in the tech sector or real estate, typically follow a phase of rapid growth followed by a significant market correction. Similarly, the automobile sector in India has seen continuous growth over the past four to five years, with a growth rate of around 20% annually. As with the dotcom bubble in the early 2000s and the real estate bubble in 2008, an industry experiencing such rapid growth is primed for a cushioned fall.
Indian Consumer Behavior:
Traditional Indian attitudes towards automobiles as a one-time investment have contributed to the current slowdown. Typically, Indians own vehicles for about 15 to 20 years, and this cycle has led to a glut of older, less environmentally friendly vehicles. The implementation of BS6 norms, which require automotive emissions to be reduced, has accelerated the depreciation of older vehicles. This shift has led to a decline in the demand for new automobiles.
Regulatory and Technological Changes
BS6 Norms:
The Indian government's move to enforce BS6 emission standards by 2020 has severely impacted the automobile industry. Inventory filled with BS4 vehicles had to be rushed for sale to meet demand, leading to a significant drop in the value of these models. This shift in regulatory standards has sent a clear signal to consumers about the need for more modern, environmentally-friendly vehicles.
Advent of Electric Vehicles:
The push towards electric vehicles (EVs) is another factor contributing to the slowdown. While the transition from diesel to EVs is driven by governmental efforts to reduce pollution, this trend has affected traditional gasoline cars. Consumers are now more aware of the benefits of EVs, leading to a decrease in demand for older, polluting vehicles.
Industry Practices and Greed Factor
The automobile industry's heightened focus on quick sales and large-scale manufacturing has been detrimental to its long-term sustainability. The advent of immediate delivery options and aggressive marketing strategies has fueled a race to the bottom. Manufacturers, in their pursuit of profit, have introduced frequent new model launches, tied up with banks for financing offers, and aggressive pricing strategies. These practices have contributed to the saturation and eventual decline of the market.
Conclusion
The decline in automobile dealership growth in India is largely a result of self-inflicted challenges within the industry. While factors such as government regulation and consumer behavior play a role, the industry's own practices have amplified these challenges. As India transitions to a more sustainable and less emission-intensive future, the automobile industry must adapt to these changes. Understanding and addressing these factors will be crucial for achieving long-term stability and growth in the sector.