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Flaming embers v Green shoots: The good, the bad, and the ugly in Indian Auto

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After months of prolonged pain, the Auto industry finally managed to show signs of recovery with Mahindra and Maruti sales, but the volume numbers were only half the story. Evidence of deep discounting to drive the sales, dropping sales numbers elsewhere in the industry, combined with the dark announcement around layoffs from Bosch seem to indicate that the worst isn't over just yet. In this post, we look at the good, the bad, and the ugly in Indian Auto at the moment.

The Good(ish?)

Minor recovery in a few players, but seems to be led by deep discounting

After a long drawn auto slump led by the combination of issues including financing, customer uncertainty over new BS-VI norms and decreasing customer confidence in a slowdown, things finally seem to be looking up for auto, or atleast parts of it. Based on the December reported numbers both Maruti & Mahindra reported modest ~4% growths in their PV business. However this doesn't tell the whole story. Channel checks by analysts seemed to suggest that discounts at the dealer level were high, in an attempt to clear inventory. Infact UV competitor Kia sold more cars via the export route than domestically in order to prevent deep discounting its relatively new Seltos. Seltos, which has had a phenomenal run since launch had a 60% drop in the month, indicative of the drivers of volume growth.

The bad

Sharp sales drop across the board despite multiple levers of volume growth

Pretty much every other player in the industry seems to fall in this bucket at the moment. Honda & Leyland marked the biggest drops with 36% and 28% respectively. Eicher (the maker of the class Royal Enfield) reported a 13% a moderate drop similar to the 10% and 14% drops in Hyundai & Tata Motors. Bajaj was down 3%. This sharp drop comes despite firms desperately attempting to liquidate their BS IV inventory ahead of the April switch. It also comes in the background of customers knowing fully well that there is a price hike expected in the new year and another one with the switch to BS VI (~5% in petrol vehicles, ~15% in diesel vehicles), which seems to indicate that the worst is far from over for the space.

The ugly

Severe potential ramifications for the economy

Which brings us to the final, and perhaps ugliest twist in the tale. Bosch CEO announcing that they will be cutting thousands of both white-collar and blue-collar jobs over the coming few years. As a marquee reasonably well-diversified auto-ancillary the fact that they are in such dire straits is quite shocking. In a sector that directly and indirectly offers employment to 37 million people in the country, the long term implications of the fundamental shift in the industry could be tremendous with the increased unemployment reducing consumer spending potential, starting a vicious cycle.

At our end, we will continue to track the sector closely and will keep the GSN Invest community updated on both the big picture as well as the on-ground details as they emerge.

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