You may have heard that the automobile sector in India is in trouble and that the sales of all kinds of vehicles have declined and are now lower than they were a year ago. This is not correct. The auto sector is seeing good growth. I saw this on the website of the Society of Indian Automobile Manufacturers. According to the latest press release on this website, the sales of all kinds of vehicles are seeing growth. I'm just a little bit puzzled because this is some special kind of growth called 'de-growth' which I haven't come across before, nor can I find it in any English dictionary. Still, it must be fine because growth is growth and is surely always good news even if this knowledgeable organisation has invented some new word to refer to it. If there can't be growth in actual businesses, then the least we can do is to somehow get the word itself into our press releases. It feels good, I'm sure.
The only problem is that investors and analysts are unable to detect this growth, probably because they are not as skilled with the language as the apex body of the Indian automobile industry is. In fact, they are all quite worried about how deep and lasting the reasons are that Indians are buying markedly fewer vehicles of all types. There are a set of reasons that are being passed around for this and taken together, those reasons encompass just about everything that has anything to do with vehicles. From fundamental technologies to design, financing, public transport, taxation, economic cycles, jobs, and even the basic role that vehicles play in society and people's lives, it seems that doubts about everything have come together in a perfect crisis.
There have been auto slowdowns in the past, but the set of reasons have never been so broad. While most of these reasons are conventional wisdom of the kind that does the rounds in every slowdown, this time there are two new jokers in the pack. These are, obviously, electric vehicles and app-based cab services. You can also call the latter VaaS (vehicles-as-a-service) or 'shared mobility' if you'd like to de-grow the clarity of your language but basically they're cabs (4, 3 or 2-wheeled) that people call through their phones. Lurking somewhere in the background, there are also self-driving vehicles but that's some time off so not a factor right now.
The idea is that people are holding off buying vehicles because they feel that electric vehicles are around the corner. On top of that, there are people who are not buying vehicles because they find that they can get by with a combination of improved public transport and app-based cabs. Can these be true? EVs are certainly coming but surely no one has postponed buying a car or two wheeler because of that. In fact, the tax-break on EV EMIs (which will probably impact two wheelers far more than cars) has barely been announced. In a year or two, there will no doubt be a large impact but it's not here yet. That's not the case for app-based cabs, which are probably a considerable impact already. At this point, one does not have to look hard to find people who have either sold off their second cars or not bought them because of the cab services. Very approximately, each cab on the road replaces the usage of maybe five to six personal cars. At this point, those personal cars are mostly standing at someone's home but some of them are already unbought.
There's going to be impact down the road but right now, the severity of the vehicle sales decline is likely because of an unfortunate alignment of a large number of factors and is thus a cyclical thing. But make no mistake, big changes will eventually arrive.
Which is actually a good thing, even from the perspective of investors who are running scared right now. It's only through stress and challenges that the weak and badly run businesses get exposed and fall by the wayside and the well-run take their place (huge example: airlines) and that's something investors should actually welcome.
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