Sec - A
Dr. POOJA MISRA
ABOUT HYUNDAI MOTOR INDIA
Hyundai Motor India Limited (HMIL) is a wholly owned subsidiary of
Hyundai Motor Company (HMC). HMIL is the second largest car
manufacturer and the number one car exporter since inception in
India. It currently has nine car models across segments – SANTRO,
GRAND i10, GRAND i10 NIOS, ELITE i20, AURA, XCENT, VERNA,
ELANTRA, VENUE, CRETA, TUCSON and KONA Electric. HMIL’s fully
integrated state-of-the-art manufacturing plant near Chennai boasts
advanced production, quality and testing capabilities.
HMIL forms a critical part of HMC’s global export hub. It currently
exports to around 88 countries across Africa, Middle East, Latin
America, Australia and Asia Pacific. To support its growth and
expansion plans, HMIL currently has 493 dealers and more than
1,309 service points across India. In its commitment to provide
customers with cutting-edge global technology, Hyundai has a
modern multi-million-dollar R&D facility in Hyderabad. The R&D
Centre endeavors to be a center of excellence in automobile
Founded: 6 May 1996
Tamil Nadu, India
CEO: Seon Seob Kim
Parent: Hyundai Motor
MAJOR CHALLENGES FACED BY
AUTOMOBILE SECTOR IN INDIA
Emergence of Covid-19: India came in the grip of the
coronavirus pandemic around March 2020. Subsequently, halt in the
economic activities and the nationwide lockdown because of this
pandemic resulted in a steep decline in the already stressed Auto
Industry in the country.
According to the latest data by the industry body, Society of Indian
Automobile Manufacturers (SIAM), the month of June 2020 witnessed
a 51 percent drop in total domestic sales at 1,094,363 units as against
2,253,407 units in the same period last year.
Passenger vehicles moved to negative with 49.6 percent decline in
domestic sales at 105,617 units in June 2020 as compared to 209,522
units sold in the same period last year.
Introduction of GST:Automobiledealers and
manufacturers charge a particularamount of GST on
the sale price of vehicles, and other ancillaryservices
such as insurance, accessories, etc. Taxation of these
supplies is a big challenge for Automotive dealers.
High Interest Rates: High interest rates alwaysaffect
consumer spending decision, especially when he
considers buying a big item like a car. When the rate
of interest is high, it shows the overall high level of
buyer demand for goods and services. In the field of
automobiles,it signifies a relativelyhigh figure for
the demand of vehicles. And when the same supply
of vehicles does not meet the demandsof
consumers, the car prices upsurge naturally.The
difficulty is that the increased demand of vehicles
and high interest rates pointtowards rapid growth of
economy while this can actually lead to disastrous
Economic slowdown: India’spassenger vehicle sales
declinedthe most in two decades in August 2019
due to a continuingslump in demand amid slowing
economic activity and an increase in vehicle
ownership costs. GDP growth of 5.8% and 5% in Q1
and Q2 (2019-20) clearly shows that the economy is
stressed. Data released by industry body Society of
IndianAutomobileManufacturers (SIAM) showed
passenger vehiclesales decreased for the tenth
straight month in August by 31.57% to 196,524 units.
This was the sharpest fall registered since SIAM
started recording data in 1997-98.
Industry Specific Challenges
1. Introduction of Bharat Stage VI norms: Whilst
grappling with one of the worst slowdownsin recent
times, the auto industry also has to ramp down its
productionof BS-IV vehicles before the deadline,so
that the BS-IV stock is completely sold out, as post the
deadline,BS-IV vehicles will equate to mere scrap.
Meanwhile,automakershave to simultaneouslyinvest
in buildingBS-VI engines and ramp up the production
of BS-VI vehicles.
2. NBFC Crisis: After the dramatic default by IL&FS last
September, the NBFC sector has been faced with a
major liquiditycrunch. The overall exposure of mutual
funds to financialsectors plummeted by approximately
Rs 64,000 crore between July 2018 and June 2019.
Since NBFCs are the major financers of customers who
do not approach banks, the liquiditycrisis of the NBFC
sector has affected auto sales to a large extent. The SBI
report assigns a 30 percent weightage to this factor in
explainingthe auto slowdown.
3. Decline in demand: According to the report, a
significant decrease in the demand, especiallyin rural
areas, for new automobilesis responsible for the
degrowth of the auto industry. This factor, as per the
report, is another reason behindthe auto slowdown
and has a weightage of 20 percent.
4. Increased acquisition costs: Vehicleprices have seen
an upward revision in 2019 and the trend is expected
to continue in 2021 due to varioussafety, insurance
and emission norms related compliancecosts. Higher
insurance costs coupled with the introductionof the
GST have increased acquisitioncosts by 2-5 percent.
This factor is 10 percent responsible for the slowdown,
according to the report.
5. New axle load norms: In July 2018, the government
increased the officialmaximum load-carrying capacity
of heavy vehicles by 20-25 percent with the aim of
bringing down logistics costs. However, the decision
adversely affected the sale of automobiles,particularly
commercial vehicles and is believed to have a
weightage of 10 percent in explainingthe declinein the
auto industry sales.
6. Other factors: Slowdown in new car sales suggests that
the demand is shifting towards a pre-owned car market
because of significantlylower costs of second-hand
vehicles as compared to the new ones. The pre-owned
car market in India has been expandingconsiderablyin
the past few years and buying and selling of second-
hand cars exceeded the sale of new cars in 2018-19.
Further, the increased availabilityof automobilerentals
promotes consumers to rent vehicles instead of buying
them. Finally,the lack of a clear migration policy
towards Electric Vehicles (EV) creates confusion among
buyers, contributing owards a reduction in auto sales.
7. Cab Services and Rental Agencies: The companies like
Uber, Zoomcar, Ola are giving great amount of
challenge to all the automobilecompaniesincluding
Hyundai.Speciallyin Metro cities like Delhi, Gurgaon
which witness huge amount of traffic and parking
problems, so people prefer using the rental and cab
services in these cities.
Ways to Reignite the Automobile Sector
Irrespective of the reasons, continued slowdown in the auto sector is a matter of
concern as it provides large employments and contributes ~7% to the GDP. Prolonged
de-growth and production cuts have already claimed around 2.5 lakh jobs in the sector
and has a cascading effect on other sectors as well. Therefore, immediate steps have to
be taken for not only boosting auto sector growth but also for improving overall
manufacturing and demand scenario.
India, so far, has lagged behind in attracting the units shifting their bases from China
post the trade war with the USA. This is despite the fact that India is already a large
market (Indian imports from China itself is USD 70 billion). Reduction in corporate tax,
more particularly for the new manufacturing units, is a big step in improving India’s
competiveness in attracting investments. However, this alone is not sufficient. More
structural reforms, improvement in infrastructure, streamlining the approval processes,
enhancing the skill-set for the worker etc are urgently needed.
Not only this, the impact of tax cut will come in a long run and will address more of the
supply side issues. For improving the demand, the Government needs to put money into
the hands of the people. This may be achieved by increased spending on infrastructure,
clearing the dues of the contractors/suppliers (of government) in time, reduction in the
personal tax (time to reward people for improved tax compliance) etc. Also, the GST
rates for the smaller units have to be reduced. These are the units which provide jobs to
lakhs of people.
So far many of them were out of tax net and it was one of their USPs to compete with the
large players. Suddenly putting them in the same bucket as the large units has taken
away their competitive advantage. Therefore, If the Government is prodding them for
better tax compliance, a support in the form of lower tax and compliance burden, at
least in the medium run, is the need of the hour. Further, an early implementation of the
scrappage policy for vehicle would help not only in generating the demand but also
bring the much needed clarity towards purchasing decisions for the buyers.