Auto sector crisis: Carmakers demand tax cuts to boost demand, analysts slash forecasts as sales plummet

New Delhi: India’s passenger vehicles sales are set to fall for a tenth consecutive month in August, forcing analysts to slash their 2019 sales forecasts and strengthening the automakers’ case for tax cuts to boost demand.

Sales data from India’s top six carmakers, including Suzuki Motor Corp’s and Toyota Motor Corp’s Indian businesses, shows that passenger vehicle sales for August fell 34 percent compared with the same period a year ago. These six manufacturers make up more than 90 percent share of the market.

Data from Tata Motors and Mahindra & Mahindra, which together account for about two-thirds of the commercial vehicles market, show that sales of trucks, an indicator of economic activity, fell by almost 40 percent.

Representational image. Reuters

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The steep decline in sales to dealers is worrying industry executives who are renewing calls for a tax cut on cars, two-wheelers and trucks while auto analysts are cutting their sales forecasts for the year.

The crisis in the autos sector is a huge problem for Prime Minister Narendra Modi’s government which last week announced a series of measures to boost bank lending for car buyers and dealers.

The government is expected to provide further stimulus especially after data released on Friday showed that the GDP growth fell to a six-year low in the April-June quarter.

“The (latest sales numbers) only highlight the need for the government to consider reducing the GST (goods and services tax),” said Rajan Wadhera, president of the Society of Indian Automobile Manufacturers (SIAM), adding that cutting taxes to 18 percent from 28 percent at present would lower the cost of vehicles and create demand. Wadhera said the government’s recent measures have done little to boost sales growth and buyers are still cautious of spending while there is a trust deficit in lending money to dealers.

The dismal sales numbers come in a week when company executives and government officials are expected to discuss the stress in the sector at SIAM’s annual conference in New Delhi on Thursday - one of the industry’s biggest gatherings in India.

Analyst IHS Markit has slashed its 2019 growth forecast for India and expects car sales to fall by 11 percent for the year. “It is not just lack of buyer interest but a loop of negative sentiment with automakers cutting jobs and production,” said Puneet Gupta, associate director at IHS Markit, noting that his initial forecast for 2019 had been growth in sales of 5 percent.

Maruti Suzuki, India’s biggest carmaker by market share, reported a 36 percent drop in passenger vehicle wholesales for August and has also slashed production for the month by about a third. Tata Motors, which reported a 58 percent decline in sales of passenger vehicles and 45 percent decline in sales of trucks to dealers to help them reduce their inventory, plans to offer discounts in the festive season starting this month to boost sales.