Crisis in the Automobile Industry

The automotive industry has been facing a slowdown worldwide. In the Indian case, the automotive industry was one of the fastest growing industries as well as an important driver of the manufacturing sector. Contributing 7% to India’s gross domestic product (GDP) in 2018, it provided direct and indirect employment due to its forward and backward linkages with other sectors. A slump in automotive sales—due to the cascading effect—thus, also affects sectors such as tyre, steel and steering manufacturers.

The current sales of vehicles have been the lowest in the last 19 years, due to a drop in the domestic demand. There was a 26% dip in car sales in May 2019 versus last year, and consequently a nearly 8% fall in overall vehicle production. In 2017–18, the sales of four-wheelers, which were growing at 14% are now down to 5%, while for two-wheelers, the decline has been from 15% to 5% over the same period. Carmakers have been halting production to clear inventories. The effect of low demand has hit the domestic component manufacturers the worst, with many reported ­operating at around 70% of their potential efficiency level, either by adopting a staggered system of work when they want to retain their workforce, or by simply laying off workers. Two questions arise at this juncture: first, whether this crisis has been in the making; and second, what its implications would be.