Slowdown Blues: Auto industry places big bets on scrappage policy to revive demand

Slowdown Blues: Auto industry places big bets on scrappage policy to revive demand

India’s automobile industry which is reeling under massive sales downturn has placed its bets on scrappage policy to revive demand for the beleaguered sector.

The representatives from the automobile industry are seeking an ‘End of Life’ policy from the central government to check the declining auto sales.

The scrappage policy, if implemented, is likely to give stimulus to customers to make new purchases supported by government incentives in place of their old vehicles, according to an IANS report.

According to Industry insiders, an India centric scrappage policy may include both commercial and passenger vehicles.

The move is deemed to be an essential component of any incentive programme for the auto industry which has seen a total 18.71% decline in off-take for the month of July, which has recorded the highest monthly sales de-growth in the past 19 years.

“A well defined and sustainable scrappage policy will play a significant role in adding to the demand for vehicles,” Grant Thornton India Partner Sridhar V told IANS.

“Typically, they should have an end of life in 10 to 15 years and if one were to look at the quantum it could add a few million new buys every year. Based on a recent study by CPCB, some nine million vehicles were obsolete in 2015 and this is expected to grow to 22 million,” he added.

Sales of passenger vehicles to car dealers fell 30.9% to 200,790 in July, data released by the Society of Indian Automobile Manufacturers (SIAM) showed. Commercial vehicles sales fell 25.7% to 56,866 units, SIAM said.

Motorcycle and scooters sales fell 16.8% to about 1.51 million units, while passenger car sales fell 36% to 122,956 units, the data showed.

The data also showed that domestic passenger vehicle production was down nearly 17% in the month.

The fall in car sales comes at a time when demand for consumer goods is falling and what is seen as a major sign of an economic slowdown in India, amid a liquidity crunch in the country’s shadow banking sector that has impacted the availability of credit in the market.

India’s auto sector is cutting tens of thousands of jobs citing slumping sales of cars and motorcycles, with many companies forced to shut down factories for days and axe shifts.

The downturn – regarded by industry executives as the worst ever suffered by the Indian auto industry – is posing a big challenge for Prime Minister Narendra Modi’s government as it begins its second term at a time when India’s jobless numbers are climbing.

The domestic auto industry demanded tax cuts and easier access to finance for dealers and buyers at a meeting with Indian government officials last week to discuss the sector’s woes, in an effort to revive sales that have slumped.