Recession or Cyclic downturn?

The automotive sector in India is under significant stress. Sales are going down drastically in unprecedented numbers. It is a vast sector and has already started giving layoffs, having non-production days- a euphemism for plant closures. A large number of dealerships have cancelled their tie-ups as the business does not appear to be lucrative. On top of this, BS-VI norms will be starting from 1/4/2020, which will cause further stress as no BS-IV vehicle will be even registered from 1/4/2020.

More difficulties will come up during this year and maybe even next year. The reasons for this is that CAFÉ norms will come into the picture from 2022. There is already a discussion of auto companies going slow on investments, but statutory requirements are mandatory, and these companies cannot avoid them. BS-VI norms and CAFÉ norms will increase the prices of cars. One thing that never comes into the discussion is the sale of old vehicles. It is not that people are not buying cars. People suddenly don’t change their habits. But people become practical and smarter.

George Mathew

I will tell you what I mean. I read an article from Indian Express which was discussing the sales pattern in the industry in general. The data in the table is for two thousand plus companies. The table above shows the business figures for April-June quarter comparison of 2018 and 2019. Sales of AC’s are generally seasonal. But other items like TV’s, Microwaves have not shown any decline. Sales are almost normal and have only shown seasonal changes.

I want to write a disclaimer. I cannot “read” the financial data, and hence, I cannot analyse it too! But as a layman, I thought there is not much difference for these two years. The sales have gone up in 2019.  Operating margins have reduced slightly. Depreciation is quite high in 2019, indicating the investments done in the that year. Hence interest paid has gone up maybe due to investments in plant and machinery. Proportionately tax paid has gone down, and profit has gone down. These figures do not show any drastic changes happening in the market. Companies considered in this table exclude banking and finance companies.

Then why is the auto sector in distress? I have mentioned that people have become smarter and practical. In the last financial year, the total number of vehicles sold was large. But the sales of new cars have come down. There is a secondary market where people buy used cars. The total number of old vehicles sold was four lacs more than new cars. Why is this happening? Small cars like Alto are now sold more in three-tier towns. Young people in big cities want to buy bigger vehicles. I understand that a 3 to the 4-year-old big sedan is now available for the price of an Alto. The trend of buying used fancy cars is affecting the sale of new cars.

I am not arguing that there is no recession in the auto sector. But we should not forget that it is one of the most protected sectors in India. Customs duty on cars below US $ 40000/ is 60 % and above this value 100%. The used cars have a customs duty of 125%.  For various reasons, this sector has remained inefficient. After many international companies started coming to India and opened their factories in India, the auto sector had a tough time. Some Indian companies took 15 years to reach the quality levels of global companies. One company that followed a correct way of doing business is Bajaj Auto. They currently export 1.8 million motorcycles every year. It gives them a buffer when the local market sales dip!

Some of the reasons for the downturn could be that main barrier for transport vehicles like octroi has been removed. The action has speeded up the turnaround time of vehicles  substantially. The effect would be that the number of trucks needed to transport material would be less than those previously required. Another reason that is making rounds is that demonetisation effect causing the sales to drop. Is such a large industry dependent on cash? In the rural areas cash was being used to buy vehicles; even large SUV’s were bought using cash. If people had so much cash with them why did they not use bank instruments to pay? The answer is obvious. Not paying taxes honestly is a habit that does go away quickly.

What was the auto industry turnover 20 years back? How much has this industry grown? The auto industry has made decent profits all these years, so I am sure they have reserves. Pollution norms have been known to everybody, so no point in raising hue and cry about investments needed.

Any sector that is in stress always talks of alarming results of the recessionary trends in their business. Should the government give selective help to the stressed industry? Is such action fair to other sectors which are doing okay in their business? The financial stimulus can be a solution, but such money gets diverted from equally essential areas. We should not forget that high tariff on imported vehicles has helped the industry for a long time.

All the companies in the automotive sector are large organisations, and they have the wherewithal to overcome current tough times. Asking for a reduction in GST is a short-term major and is taking a myopic view of the situation. In the last couple of years, the government has been receiving feedback from business about GST. Government has already made changes for the benefit of both industry and the government. Making changes for a specific industry for a short duration is an incorrect way. The auto industry has been generating decent profit for the last few years. Some things have changed; some new variables have come into play. There are who experts can find a solution and suggest corrective actions. I am sure the industry will come out of it.

Raising the alarm, making statements like “It is the wake-up call for the Government of the day” does not solve issues. But the government help should be an exception but not a rule. There is an interesting story about General Motors and Chrysler. When they were in serious financial trouble, a decade ago, the senior executives of both companies were called to Washington DC for discussions. In the initial informal chat, they were asked if they reached Washington the previous night. The surprised executives said, “Oh, we landed only about 45 minutes back. We chartered a plane to come here.” The government official was aghast!

So where is the vendor conference this year? Italy, Las Vegas, Macau? How can you have the conference inside your factory? Cost cutting is for others. I have attended General Motors vendor conference once in Pune. It was at the Oxford club and there were at least six helicopters used by GM bosses to arrive at the venue! It is not a surprise that GM closed their shop in India.

Advertisements

Gauri Lankesh- an Enigma!

Gauri Lankesh was killed by assassin’s bullets outside her home in Bangalore. This happened on 5th of September 2017 in the evening around 7 pm. The shooters escaped on a two wheeler and are yet to be traced. Now information is coming that murder weapon used in Kalburgi case is same as used to kill Gauri. Possibly, except the identity of the murderers, everything is supposedly known to the authorities.

Murder in any form, any reason just cannot be glorified or justified, it has to be strongly condemned! But this murder has evoked such strong reactions, both for or against, that it has become a Tamasha on the social media. People are outright cursing Gauri to glorifying her! Karnataka govt even gave her Gun Salute at her burial! That too to an open supporter of Naxalite movement. There have been stories floating around that she was born Christian, (hence the Hindu basher)  later converted hence the burial. Simple explanation is she was a Lingayat and Lingayat’s bury their dead!

Why do such extreme reactions occur? Is it because of Gauri’ nature? Is it because of her passion? Was it because she called ilks of the type Shehla Rashid, Kanhaiya, Umar Khalid her adopted children? One thing was sure that she was extreme left of center in the political milieu. When there are extreme reactions truth is generally at the center but in case of Gauri we can say that truth was also left of center!

Is it possible that the persons like Gauri start with a cause in great zeal, then they become over passionate, or zealots? Over a period probably they lose contact with reality and are in their own world! I always have many questions about lives of such people. When they are so busy with causes, what do they do make ends meet? I have not read anywhere that Gauri was born in a super-rich family. She ran a regional Kannada paper Gauri Lankesh Patrike which was born after a bitter fight with her own brother about original regional paper Lankesh Patrike, ran by her father. I am sure their income must have been less than that supplements of major newspapers. Were the cases filed against her paper and Gauri for defamation, an income stream? I hope not.

On the other side, who wanted her dead? By killing her what was achieved? Was it a khap panchayat type of decision, where “Supremos” of some group, having totally different views than Gauri, just decided to eliminate her! What Gauri had achieved in her life was nothing path breaking or breath taking! May be she was born fire brand, had passion, was fearless but that’s about it. She did not topple any govt, she did not lead any mutiny, and had views which were against the views of many. Right or wrong? Nothing in life is absolutely right or wrong! But to kill a person for these reasons cannot be understood by a normal person like you and me.  

There have been different viewpoints in life all along. The advent of social media has taken these discussions to a different peak or a valley of hatred! Another thing is that, this venom spreads extremely fast! Snake bite may kill you in five minutes but social media venom can kill you 100 times in five minutes. I have read the reactions of people of both extremes. I am really ashamed to be part of such society.

Similar to strong reactions from extreme right wingers, why reactions from Gauri’s group of people equally venomous and strong! When nothing is ever proven why blame Hindu organizations directly? Nathuram Godse killed Gandhiji, that did not mean that RSS had directed him to do the killing. Another point I have never understood is why all right wingers are always Bhakts and all Left wingers are traitors? Why is fear expressed that Nazis are taking over? How come most of us don’t see these things? Maybe we are dumb? Maybe we are also Bhakts?

Is there any solution to such extreme thinking? Can so called debates on TV not be toned down? We cannot stop what is written on whatsapp and facebook. But TV debates are under controlled conditions! Contradictions are also easily visible. Probably some are immature people. In a protest march to condemn death of Gauri, Republic TV reporter was hooted out by Shehla Rashid. Freedom of speech is  for all, not only for extreme left wingers! Maturity?

Let me conclude with a small excerpt from tribute on Gauri’s death, written by Chidanand Rajghatta, a well-known columnist from Times of India, based out of Washington DC. He and Gauri were married for five years, long back!

“Gauri’s presence at the cards table became rare as she threw herself into the fight against right-wing bigots, zealots, and extremists. We argued about that too at the cards table because some friends thought she had gone the other extreme. There was no doubt she was left of center, even extreme left of center. But heart was in the right place, and there was no place in her world for violence. Only cowards took to violence.

One day, she called to announce that she’s coming with her son. “Who have you adopted now?” I asked. “Kanhaiya Kumar,” she chuckled. “You mean the JNU bloke?” “Yes, you’ll love meeting him.” Little later she called to say his flight was late and she can’t make it. That was the last time I heard her voice. Bubbly and bursting with energy and passion for causes big and small.”