1) Please explain in detail at least two reasons for this plunge.

( Minimum 200 words ) It is words,

not characters.

Production:

 Automobile Industries trying to keep check on inventory at onset of Bharat Stage 6 (BS6) and
BNVSAP (crash test norms) .Thus many producers have shut down production. Decline in
commercial vehicle production might have been severely impacted by BS6 because most
commercial vehicles are diesel engine.
 Elections may have caused disruption in production, possibly because producers anticipate relief
and benefits post elections, or because automakers may have used up a lot of company cash to
fund election campaigns.

Domestic Consumer:

 Customers may be waiting to purchase BS6 and BNVSAP compliant automobiles, fearing that once
production of non-compliant automobiles stops, maintenance services and spare parts may
become rare and expensive. Customers may also anticipate the extreme case that old models may
be outdated and their use discontinued in future.
 Elections: The political disruption may have altered customer sentiments, making customers hope
for lower automobile prices post elections.
 Insurance costs may have gone up (Kerala floods etc.), thus adding customer costs.
 Non-Banking Financial companies (NBFC) crisis may have caused some liquidity squeeze, thus
reducing consumers’ purchase ability, especially for commercial vehicles which are mostly
purchased via NBFC financing.
 Improved public transport (Metros, Cab-Services, Rentals) may have decreased passenger vehicle
demand, especially in tier 1 cities.

Exports:

 Trade restrictions imposed by countries such as Indonesia to reduce trade deficit.

 Declining international demand in countries (ex: Sri Lanka).
 Political and economic instability in export markets, duty disadvantage for imports from India vis-
a-vis other countries, focus of MNCs on supply to domestic market to maintain market share than
exporting and strategic decision of MNCs to cater from other plants in their exports market than
India.

Additionally, rural distress and GDP slowdown (7.2% to 6.8%) have affected overall plunge.

Of the above mentioned reasons, the reasons that in my opinion have affected this plunge the most
are explained below:

General Elections:

Elections have a negative impact on sales on many industries including the automobile industry. This
can be easily verified on looking at the figures of 2014 April-May (previous assembly elections in India)
over the figures of 2013.

 Passenger vehicle sales declined 17% units in April 2014 from a year earlier (highest drop since
2011), according to the Society of Indian Automobile Manufacturers. This figure very well
aligns with drop in passenger vehicle sales by 18.82 % this year. [1]
  Sales of commercial vehicles fell 6% units in 2014 over 2013, which is comparable to the 8.05%
drop in 2019 over 2018. [1]
 Two-wheeler sales fell 16.4% in 2014 compared to 2013 (same period), while 2019-18
experienced a drop of 11.68%. [1]

The above figures show a correlation between the drops during 2014 April-May over 2013 April-May
and the drop during 2019 April-May over 2018 April-May. Thus Elections may be one of the many
reasons behind the sales slump this year.

According to a Livemint research, Government spending goes up in an average election year, which
tends to fuel inflation rather than spur growth, suggesting that the extra public expenditure ahead of
polls is largely wasteful. There is overall slowdown in investment and economic activity. [2]

Onset of Bharat Stage 6 (BS6) and BNVSAP (crash test norms):

BS6 and BNVSAP norms may have had a huge impact on production of Automobiles. In 2016, India
signed the Paris Climate Agreement. Ideally, BS V would have been rolled out by 2021 and BS VI in
2024 but leapfrog to Bharat Stage VI norms by 2020 had to be planned because of the carbon footprint
obligations. This was a huge and fast migration which had taken Europe close to 9 years, but India got
only 3 years. This is a huge reason for the disruption in the automobile industry.

 As automobiles are racing to gain the technical know-how for BS6 compliant vehicles by 2020,
they also have to liquidate old stock. Many automakers such as Mahindra had to stop
production for many days for inventory correction.
 Same can be said of BNVSAP (Bharat New Vehicle Safety Assessment Program) which is also
causing automakers to make leaps.
 These norms have also lead to sales slump, due to decrease in demand and discounted sale
prices. Many buyers are simply withholding their car buying decision to see how BS6 pans out
and there are a variety of reasons for that:
o Even though prices of automobiles are supposed to increase, there is uncertainty
on whether maintenance services and spare parts will be available for non -
vehicles.
o Customers are uncertain that non-compliant models may be declared out-dated
in future, and thus their use may be discontinued.
o Concern that resale of vehicles bought prior to 2020 will be unfeasible.

2) As a management student, how will you tackle this situation and your advise to the manufacturers
and policy makers ( Minimum 150 words )

Advise to Automakers:

 Automakers must make the best of the crisis by building strong customer relations. Focus on
targeted customer acquisition and building customer loyalty. Adequate pricing, vehicle size
options, corporate social responsibility programs, excellent customer service, and dependability
are all factors that keep these brand’s customers coming back. The goal is to make the brand stand
for a vision that customers can believe in whether it be a feeling of nostalgia or the brand’s
commitment to fostering community and safety.
 Automakers must encourage pre-buying of BS6 compliant automobiles while selling old inventory
at discounted rates to ensure smooth transition and minimum disruption.
Advise to Policymakers:

 Policymakers must provide relief and benefits to automakers. For instance, policymakers can
provide restoration of incentives on R&D, to help in smooth transition to BS6 and BNVSAP norms.
Preferential tariffs for automakers would also help producers to thrive in the turmoil.
 Policymakers should try to focus on taking fast steps to address structural problems that
contributed to the liquidity crisis. They can take steps to widen the borrower base of NBFCs which
have been banned from accepting deposits. This would allow NBFCs to tap into more reliable
sources of funding and recover from the ongoing liquidity crisis.

3) Two or three suggestions to avoid such situations in the future. (Minimum 50 words)
 Policymakers must provide reasonable deadlines to ensure smooth and affective transitions, along
with some relief and benefits to assist the industry to avoid economic losses. Also, policymakers
must take reasonable steps to avoid liquidity squeeze in future through proper financial
regulations and checks to ensure easy credit flow.
 Automakers should reduce dependence on politically and economically unstable export markets.
Policymakers should also ensure free trade agreements are met by agreed countries so that
automakers don’t suffer from export plunges in future.
 Manufacturers must be proactive in assessing and adapting to political, economic and
technological changes to ensure well-managed supply chain without any production and sales
losses. BS6 and BNVSAP norms can be leveraged to boost export to other countries with similar
requirements, thus expanding international sales. Also, automakers must encourage R&D to stay
abreast with latest technology to avoid last minute panic. For ex. R&D of electric, hybrid, hydrogen
vehicles, etc. should be carried out even before any Government mandate arrives.

References:

[1] https://economictimes.indiatimes.com/industry/auto/auto-news/april-car-sales-fall-the-most-
in-about-9-years/articleshow/69304071.cms?from=mdr
[2] https://www.livemint.com/Politics/RRDNEebSEiPECEiclpqZmM/How-do-elections-affect-the-
economy.html