Investing.com | Sep 14, 2019 12:01
I was looking at Twitter with trending hashtag #BoycottMillenials, and I was surprised to see so many comments against the statement made by the Indian Finance Minister Nirmala Sitharaman. She had mentioned this Tuesday that one of the reasons for the auto sector slowdown was the “change in the mindset of the millennial not to commit any EMIs (equated monthly installments) towards buying an automobile and instead of taking OLA, UBER or the Metro (train) services.”
We all know that the auto sector is in the midst of its worst slump. The sales for the Auto sector continue to decline by more than 30% for the last few months on a year-over-year basis. The auto companies are resorting to production cuts, and many employees have been laid off by them.
Let’s analyze the FM’s statement deeply. I agree with her partially here. People who own cars have to contend with higher cost compared to app-based taxis, which include car maintenance costs, and higher insurance costs, etc. They also have to contend with the lack of enough parking slots in India and driving on poor quality roads and congestion. If they opt to hire a permanent driver, that’s an additional monthly cost.
App-based taxis such as Ola and Uber are much lighter on costs, and they are convenient as consumers don’t have to worry about finding parking slots, etc. However, owning a car is still considered a status symbol in the society. It is also much safer to drive your vehicle (if you follow traffic rules) compared to app-based drivers driving you with weird behaviors. Plus consumers have to deal with surge pricing on app-based taxis, especially during rainy days, something which comes as a shock to them through much higher expenses. Hence, there are both pros and cons to owning a car or hiring an app-based taxi. But there are more pros attached with hiring Ola and Uber, especially with millennials -- the moat point that the FM has raised here.
Having said that, while what the FM mentioned is one of the factors, there are a number of other factors that we need to be cognizant about, which is currently contributing to the downfall of the auto sector.
Firstly, owing to mandatory additions like an airbag, ABS, etc. the cost of owning cars has increased over the last year or so. Secondly, an increase in insurance costs and higher taxes make owning an expensive car affair. Slowing income growth and household savings are making consumers think twice before committing to buy a vehicle. Then finally, the liquidity crunch that the NBFCs are facing is acting as a deterrent for consumers to make an outright purchase of a car.
Acknowledging the auto sector slump, the FM did announce a few sops for the auto sector last month. She announced that the BS-IV vehicles bought before March 2020 would be allowed to remain operational for their registration period. The FM also announced that the government would lift the ban on the purchase of new government vehicles to replace old cars. There is also a hope that the GST council would slash GST rates on automobiles in its meeting on September 20th.
Written By: Investing.com
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