Budget 2020: Five key trends having huge impact on Indian automotive industry

Union Budget: While the long-term growth story of the sector is intact, the government needs to address the immediate
challenge of demand revival. Budget India 2020: Like the last quarter, automotive companies (OEMs) will continue to focus on liquidating their remaining BS-IV stock in this quarter as well. Additionally, they will work to ensure a smooth transition to BS-VI.By Kavan MukhtyarOver the last few years, rapidly evolving customer needs, disruptive impact of technology, major regulatory reforms have gained centerstage in the automotive ecosystem. While quality, cost efficiency, productivity and delivery excellence continue to be business imperatives, model life cycle is becoming shorter and the industry is moving towards mass personalization. Growing penetration of electronics, enhanced safety features, greater fuel efficiency, stringent emission norms, e-mobility are the key trends impacting the industry.These megatrends are already affecting the industry, and to thrive in this changing environment will require automotive organisations (across the value chain) to make several fundamental changes in their way of working in order to drive profitable growth and remain relevant in the market. Some automotive and component companies are embarking on digital transformation projects to build competitiveness which will give them an edge in the marketplace.Budget Expectations 2020 – AutomotiveDomestic sales volumes in all vehicular segments have witnessed a sharp decline with passenger vehicles and commercial vehicles worst hit. The main reason for this has been low customer demand due to the ongoing liquidity crunch along with the greater cost of finance and insurance. Like the last quarter, automotive companies (OEMs) will continue to focus on liquidating their remaining BS-IV stock in this quarter as well.Additionally, they will work to ensure a smooth transition to BS-VI. While the long-term growth story of the sector is intact, the government needs to address the immediate challenge of demand revival. Following steps, the government can take to kickstart demand:WATCH: What is Union Budget of India– Reduction in the Goods and Services Tax (GST) rate applicable to automobiles to 18% from the current 28% to absorb the additional price impact of shift from BSIV to BSVI– A cut in the personal income tax rate will provide more disposable income in the hands of consumers which could lead to automotive demand recovery– An incentive-based vehicle scrappage policy be introduced to remove old vehicles off the roads and trigger demand for new vehicles– Abolish the customs duty of 5% on Lithium-ion cells to promote local manufacturing of the batteries in the country. This will further reduce cost of electric vehicles and accelerate its adoption– Incentive for lithium-ion battery manufacturing for EV applications– Allocate adequate budget to state transport undertakings to procure buses which will boost demand for commercial vehicles– Speed up NBFC revival to stimulate rural demand growthThe main challenges for the automotive industry are:Managing costs and target return on capital employed – It is critical for automakers to be agile to enable them to manage high costs and maintain profitability in wake of low sales volumes.– Shift to BSVI – The shift to BSVI by April 2020 will be challenging for automakers as it will result in price increase which is likely to adversely impact demand. Customers are likely to postpone their buying decision further worsening the demand scenario. In order to counter this, companies are launching newer products in the market with attractive features– Liquidity crunch – Significant number of two-wheeler and commercial vehicle sales are financed by NBFCs. Hence, the demand was impacted due to squeeze in the NBFC financing.(The author is Partner and Leader – Automotive sector, PwC India. Views expressed are personal.)

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