No country for new cars: The millennial angle in India's auto slump

Does FM's comment have substance, or was it off the mark? Sales numbers of a auto vertical holds the clue.

Ola and Uber are back in the news again, this time in the context of a sector caught in its worst phase in memory.

Finance minister Nirmala Sitharaman stirred a hornet's nest yesterday when she said that the Indian millennials' preference for Ola and Uber is one of the reasons behind the Indian auto sector's spectacular fall.

There has been a change in the mindset of millennials who now prefer cab aggregators instead of committing to paying monthly instalments for a car, Sitharaman said. She also cited metro trains as a reason why young urban consumers are buying fewer cars.


The finance minister's view has kicked off a lively debate; there have been some takers while many of the industry analysts have summarily panned it.

So, does Sitharaman's comment have substance, or was it off the mark? Latest sales numbers of a specific auto vertical may hold the clue.

Side by side with passengers cars, the sales of bus & trucks also saw a precipitous 39 per cent fall last month, compounding auto industry's travails. Analysts said it would be too far-fetched to attribute such a slump to millennials, few of whom ever buy a bus or a truck, if at all. According to Bloomberg, it actually is a pointer to the general fall in demand in the Indian economy — something that extends way beyond the country's millennials and their buying behaviour.
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Of late, auto industry bigshots have given their own views on the situation and quite a few of them seem to be at odds with Sitharaman's observation: Maruti boss RC Bhargava thinks cars are becoming too expensive for Indians, while Rajiv Bajaj says over-production has brought the industry to this sorry pass.

To be sure, this is not the first time Uber and Ola have been cited as a reason behind falling car sales in India. A few months ago, an RBI study had also partly attributed the fall in overall four-wheeler sales to the rise of the two cab aggregators.

Wheels come off
Sitharaman's comment comes at a time when India's auto industry is mired in the worst-ever setback in its history. August, when sales fell by 41 per cent, was the 10th consecutive negative month for domestic passenger car sales. The broader industry scenario is one of widespread dismay — car companies putting the brakes on investment, dealerships shutting down in large numbers, lakhs of jobs already gone.

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Maruti, India's biggest automaker and for long the industry bellwether, is reeling under its seventh straight month of contraction. Chairman RC Bhargava says the situation could get even worse; he sees more workers getting fired in near future.

Going by hard numbers, this auto slowdown is more a function of the country's broader economic woes than of any other factor. Consumption, the main pillar of the economy, is down in the dumps; GDP growth has just fallen to a six-year low; joblessness is at a 45-year high.

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Consumers are deferring buying decisions in view of such uncertainty. There also are a host of others factors down the line, such as: (a) sluggish rural income growth has played spoilsport with demand for cars, (b) hazy e-car norms are confusing buyers, and (c) the shadow banking crisis has made loans scarce.

The reasons for auto industry's plunging fortunes are varied, and millennials' aversion to owning cars may have only had a tiny impact, if at all, on car sales numbers beyond the country's urban centres, where ride-sharing apps enjoy wider user bases, analysts say.

The case for GST cut
Sitharaman's view comes close on the heels of a similar comment by Asia's richest banker Uday Kotak: he said last week that his own son was more comfortable using Ola and Uber. He, however, also showed car industry the bigger picture — that cars are no longer an aspirational asset for Indians, and that automakers must make peace with this unfolding structural change.

Meanwhile, Sitharaman's much-hyped sops have failed to enthuse carmakers, who have now begun lobbying more for a big GST cut on cars. Will bringing down the GST rate help? The answer may be found in this illustration:

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