Free Press Journal

How the demonetisation has impacted the Indian car industry

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OVERALL IMPACT

One of the most severe impacts of the recent demonetization of the high-value currency notes has been felt on the ‘discretionary’ spends segment, basically spends that are not essential and that can be put off for later. Purchasing a personal vehicle comes under this segment, and to that end, there has been a huge visible impact on the sales figures of the Indian car industry in general and the private vehicle segment in particular as a result of the demonetization.

Whereas the automotive industry itself is cyclical in nature and is impacted by the overall economic upturns or downturns that are periodic and event driven, the demonetization of high-value currency has actually made most prospective car buyers halt their decisions and postpone those till a time more clarity emerges on the issue. In any case, the devalued currency cannot be accepted by the car dealerships and the new currency is not available in the system, therefore for people who are not heavy users of the banking system or electronic payment modes, especially in the villages and towns are left with no other system than to wait it out.


BY HOW MUCH

According to FADA (Federation of Automobile Dealers Association), the footfalls at car dealerships have slowed down to less than half and the overall car sales have been reported lower by almost 30%. Another reason for the drop in sales has been the fact that persons that wanted to upgrade their cars by selling their existing cars are not being able to do so due to the dearth of cash in the system as well as the fact that people are not ready to make any high-value purchases until more cash in infused in the system, which can take months. The used car dealers in Delhi are reporting the decrease in sales and inquiries by more than half. This is significant because more used cars are sold in this country yearly than new ones and typically people sell an old vehicle to buy a new one.

THE IMPORTANT FACTORS

Also, another important fact is that most people tend to buy their vehicles either towards the end of the year or in early months due to the festive and auspicious season, but due to the timing of this demonetisation, that has been severely impacted too and the erstwhile ‘good months’ of car sales have not remained as good. Since most down payments are in cash, the bookings of new vehicles have all but stopped because of nonavailability of cash. Another huge factor is the impact on the marriage season where people are cutting corners in cost and are generally deferring the high-value sales to a later time. A new car is among the most popular purchases on new marriages.

CONCLUSION

Overall, it can be said that the demonetization has had a rather negative impact on the automobile industry in general and the car industry in particular and if the indications are to be believed, it might take a while before the sales are normalized. It is also not a secret either that most high-value transactions for buying luxury cars are normally made in cash, which can be debated as being black money or white,  but its impact on the luxury car sales is almost a given.