10 Reasons for Declining car sales and how car makers are dealing with it!

Car sales are on the decline in India. March 2019 saw a 8% drop in sales [Source]. April 2019 was deemed worst with over 16% drop in YoY car sales. [Source]. May 2019 numbers are yet to come in but not likely to be any better. Healthy car sales is crucial for overall economic growth- lakhs of people's livelihood is dependent on it- those employed in factories, dealerships, mechanics, accessories sellers, insurance and financial service providers and so on. But the uncomfortable truth is here-it is not clear when car sales will begin to improve.
Here're the major reasons why Indians are not buying cars as much as they used to.
1. No space on roads
Our road infrastructure in cities is reaching its capacity. There's simply no more space to widen the roads. What is the point in having a luxury car when there's no space to drive it? High levels of pollution, crazy amount of commute time and walking being quicker than driving in most cases- So many are thinking multiple times before making up their mind to buy a car- if they can avoid it, they are happy to postpone car purchase

2. Convenient Metro
Most cities now have metro system, using which it is possible to reach different parts of city for cheap and in less time. A lot convenient than driving all the way, even if it means taking an auto or cab for the last mile connectivity.

3. Ever increasing cost of ownership
While car purchase is lot easier than ever with easy loans and offers, real burden kicks in post purchase. A parking lot in apartment complex costs several lakhs, insurance premium keeps going up each year, more and more roads are getting tolled, increasing cost of commute, fuel price has no indication of ever getting cheaper, finding parking space is time consuming and expensive- so the cash outflow every month after car purchase is significant. People have begun to realize this and the futility of buying a car, particularly when better alternatives are available.

4. Affordable cabs
Uber and Ola have made lots of people post pone their car purchase decision or delay second car purchase. Why deal with all the hassles of car ownership when cab rides are convenient and economical?

5. Self Drive rentals
Rent for a few days on need basis than buying a depreciating asset like car-with dozens of self drive car and bike rentals now operating in various cities, renting is more convenient and economical than owning, particularly if the usage is limited and ad-hoc

6. Car Subscription and Lease options
Zoomcar has a ZAP Subscribe. Other rental companies are launching similar lease programs where you can have a car at your disposal for a rental fee than having to spend lakhs on ownership.

7. Millennial who prefer experience over things
Many youngsters are moving away from traditional notions of wealth and success. Owning expensive cars and stuff aren't always considered cool. Many prefer to live an asset lite life which gives them high flexibility and prefer to spend money on experiences like travel. Owning a car doesn't always give you an image boost in your peer group and not owning one won't mean you'll be looked down upon.

8. Attempt to milk car owners backfiring.
Everyone assumes car owners to be rich and can afford to pay more. Consider the following
  • Taxes are still high on cars- 18 to 28% GST and various other cess on top of it. (Lowest 12% for electric cars, highest 50%+ for some expensive cars)
  • Even after paying road tax, almost every other road is being converted into toll road- extracting several rupees per km from car owners, making the trip expensive
  • People thought buying diesel car could save them money if the usage is high- now diesel is made almost same price as petrol eroding all price advantage
  • Insurance premium is revised upwards every now and then
  • Lots of rules are imposed on car owners- speed limit, mandatory fast tag, parking restrictions, one ways and so on, without corresponding improvements in infrastructure and facilities- gradually irking car owners and pushing people away from ownership decision.
If policy makers can stop treating car owners as cash cow, may be people will consider buying more cars.

9. New Safety and emission norms
BS 6 emission norm will kick in from April 2020. Selling older cars will be difficult. (Some cities now won't register BS3 used cars). Ever changing policies are probably forcing consumers to wait and watch.

10. Focus on electric and not yet mature electric car industry
It is certain and petrol and diesel cars don't have a long future. But the electric cars aren't able to offer an alternative yet either. Electric cars cost a lot more, have limited range, replacement battery is expensive and charging infra is poor. So those who can manage without a car or who are keen on electric car are probably waiting for a more practical electric car options. CNG, Hybrid, Biodiesel and such alternatives haven't been able to make any impact in India.

Can you think of more reasons? Have you cancelled/postponed car purchase decisions for any of the above reasons? Do let us know in comments.

How are car manufacturers are dealing with slump in demand?
Desperate times call for desperate measures. Below are how car makers are dealing with reduced demand

1. Collaboration with other brands
Maruti and Toyota are collaborating to sell each other's cars, Ford and Mahindra are talking of partnerships. Collaborating instead of completing helps car makers in following way
- Save on R&D cost- instead of designing new cars they can sell each other's car
- Clear old stocks by selling cars to loyal customers of anther brand

2. Take unpopular cars off the market.
Mahindra is planning to discontinue various models that are not selling enough from April 2020. Maruti and Tata are likely to discontinue entry level diesel cars. By taking away less popular models off the market, car makers can focus their efforts and energy on fewer models, can save on R&D, sales force and marketing efforts. Hopefully customers won't walk away to competitor showroom and will buy another similar model- this is a calculated risk.

3. Reduced production
Maruti has reduced production by 25%, [source] other brands may do same thing- like working only 2 shifts instead of 3 etc to slower the output till demand picks up

4. Increased automation and online purchase experience
Websites of automobile companies now are more interactive than before. You can customize your car, compare with competition brands and do a lot more yourself, without needing a sales person to assist. This means less sales staff needed. Read how Maruti is doing accessory configuration automation

5. Reduced new launches
Volkswagen hasn't launched a new  model in India since years. Even for other brands, new launches are few and far in between. Only compact SUV segment seem to have good traction and seeing many new launches (Nissan Kicks, Hyundai Venue, Tata Harrier etc). Without enough sales, management won't have motive to pump in more money on R&D, new models etc. Most car makers are on a wait and watch mode to take any big decision.

6. Steep discounts on older models
Most car makers and dealers have very high levels of unsold inventory, not leaving enough space for new cars. So if you're ok to buy a slightly older model, you can negotiate steep discounts.

7. Focus on hydrid and electric
Car makers are trying to build electric versions of their popular models, though most of them are in very early stages. Once they achieve reasonable success, may be they can sell more and more electric cars.

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