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Are Uber and Ola really affecting India's auto sector?

By Finserv MARKETS - Dec 25,2019
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The reports are out, and they highlight a single fact: India is going through one of the worst economic slowdowns in years.

The experts blame such a slowdown on several factors that range from low disposable incomes to a credit crisis in the banking sector. However, the finance minister of India has blamed a certain “millennial mindset”. The economic slowdown, according to her, is but a result of how millennials have been living their lifestyle.

Are Uber and Ola really affecting India's auto sector?
“The automobile and components industry has been affected by…the mindset of millennials who prefer to use ride-hailing services such as Ola and Uber,” said the finance minister while addressing a media gathering on September 10. “They (millennials) do not want to commit to taking equated monthly installments (EMIs),” she added.

However, in clear contradiction to her statement, the data shows that buying cars on full down payment is no longer popular, with over 70% of new car purchases being made through loans. With the access to several personal loan offers with attractive benefits, available easily on sites like Finserv MARKETS, consumers are utilising this method to get their hands on their dream vehicles.

The comments made by the finance minister came only a day after the auto sector reported one of the steepest declines in the monthly sale of vehicles since 1997-98. The sale of automobiles across several categories, including two-wheelers, passenger vehicles, and commercial vehicles fell 23.55 percent year on year for the month of August. The report was presented by the Society of India Automobile Manufacturers (SIAM). According to the industry report, the sale of passenger vehicles was hit the worst as they fell 31.57 percent.

Can the blame be put on millennials or cab aggregators?

With the onset and the penetration of internet, millennials have a host of choices and preferences when it comes to their commute. However, the entire slowdown of the economy and auto sector cannot be solely blamed on millennials since there are so many factors attached to it. We’ll explore some of them below.

  • High GST rates in the automobile sector:

The goods and services tax (GST) which is levied on cars is high at 28 percent. People across the industry have been calling for lowering the tax in this sector, as the cost of purchase increases significantly.

  • Unemployment:

Another reason that has been attributed to the youth not willing to buy automobiles is the steady decline in job growth. The rate of unemployment in India for the year 2017-18 was recorded at 6.1 percent, which happens to be the highest in 45 years.

  • The slowdown in the rural sector:

The fact that cab aggregators like Uber and Ola are more operative in the urban space is a point against the finance minister’s argument for them being a driving force in the automobile slowdown. In rural India, the sale of the two-wheeler, as per the report by SIAM, fell 22 percent year on year in the month of August.

  • The decline in commercial vehicle sale:

The argument made by the finance minister does not quite justify how the sale of commercial vehicles in the auto sector has dropped down due to millennials opting for Ola and Uber. The purchase of both buses and trucks have dropped 39 percent from where they stood a year ago. The fall is such that the commercial vehicle maker Ashok Leyland observed non-working days in its five units earlier this month. The company had reported a 47 percent decline in sales in August, and several contract laborers were laid off too.

  • Overall decline:

It is not only the automobile industry which has been affected by such a slump. Sales have been declining across various sectors, even in fast-moving consumer goods (FMCG). For example, people have been reluctant in buying fast-moving items that can be purchased at a small price — biscuits, for example.

The various factors behind the slowdown have not quite been explained by the finance minister of India. While the government has claimed that it is working on reforms to revive these sectors, it is quite imperative that the millennial mindset and the emergence of cab aggregators are not the sole reason behind the decline in sales and the overall slowdown of the industry.

Other factors contribute to the picture as well, such as the rising fuel prices and the industry’s inability to pick up pace in wooing people for public transport. The introduction of electric vehicles that promise cheaper mobility has just started, and the future of it is still to come.

The finger could instead be pointed at various government regulations, and the overall growth of unemployment and unemployability, which has affected the way the industry in several ways.

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