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Auto slowdown’s cyclical, but may be protracted this time

This time around the downward trend in Motown may be protracted due to several factors affecting demand.

, ET Bureau|
Updated: Sep 06, 2019, 11.53 AM IST
0Comments
BCCL
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In addition, the advent of electric vehicles has also made customers concerned about the future of vehicles running on internal combustion engines.
ET Intelligence Group: Is the current downturn in the auto sector cyclical or structural? The sector’s volume data over the past two decades suggests that it is more of cyclical nature.

However, this time around, the downward trend may be protracted due to several factors affecting demand. Historically, the upcycle or the positive demand trend for Indian auto makers lasts for 4-6 years, and the downcycle persists for 2-3 years. The last upcycle in the trucks segment was for the five year period from FY15-19 when volumes grew by 17 per cent and tonnage by 21 per cent annually, according to CLSA.

The average downcycle for trucks is nearly three years with average volume drop of 17 per cent. The volume of the medium and heavy commercial vehicles (MHCV) fell by 29 per cent in the first five months of the current fiscal with each of the past eight months recording volume drop.
auto-graph

Poor freight availability, lower freight rates amid broader economic slowdown are major factor of slack demand.

The tractor segment has an average upcycle of 4.7 years. Tractor sales volumes fell by 14 per cent in each of the last two quarters. August was the seventh consecutive month for Mahindra & Mahindra, India’s largest tractor company, to report a drop in volume.

The passenger car segment, which accounts for 13 per cent of the total vehicle sales in India, has reported five phase of volume decline in the past twenty-five years with an average duration of 13 months. In the current cycle, the consecutive monthly decline has completed 12 months.

RS Kalsi, executive director at Maruti Suzuki said that the current downturn could extend more than historical average given the rising cost of ownership due to regulatory changes such as new emission and safety norms and lower access to credit as lenders are turning risk averse.

In addition, the advent of electric vehicles has also made customers concerned about the future of vehicles running on internal combustion engines.

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