◼ ECONOMICS Bloomberg Businessweek September 16, 201929THE BOTTOM LINE India’s automakers are pleading for relief in
the face of the deepest sales declines on record. Unemployment,
which is tracking a 45-year high, is headed higher.● Troubles in the world’s No. 4 car manufacturer
are rippling through the economyIndia’s Auto Boom
Goes Bust
It’s hard to escape the influence of the auto
industry in Chennai, a city in southern India known
as the nation’s Detroit. Schoolyards have billboards
proclaiming they’re “supported by” big carmakers
such as Daimler, Renault, and Nissan Motor. Even
the public toilets in a nearby slum are sponsored
by the country’s largest tiremaker.
With a rising middle class and rapid urbaniza-
tion, this should be boom times for India’s auto-
motive industry, the fourth largest in the world.
Car density— measured by the number of passen-
ger cars per 1,000 people—was only 27 last year,
vs. 145 in China and 570 in Germany, according to
Fitch Ratings. That leaves huge potential for growth.
McKinsey & Co. projected in 2018 that India could
overtake Japan as the No. 3 car market by 2021.
Yet the mood in Chennai is one of gloom as an
unprecedented slump grips the industry. Passenger
car sales have contracted for nine straight months,
plunging to 115,957 units in August, a 41% drop from
the previous year—the biggest decline on record.
Automakers are cutting investment and produc-
tion; hundreds of dealerships have shut down.
Nationwide, job losses in the sector, which employs
more than 32 million people directly and indirectly,
have climbed to more than 580,000 in the past
18 months, according to estimates from labor unions
and auto dealers.
R.C. Bhargava, veteran chairman of Suzuki
Motor Corp.’s Indian unit, Maruti Suzuki—the coun-
try’s largest carmaker—describes the situation as
“quite bad” and predicts more job losses for the
industry. Maruti’s sales have contracted for seven
straight months, and the company said this month
it will halt production of passenger cars for two
days at two of its plants.
At least 60% of contract workers at auto plants in
Chennai have lost their jobs in the past few months,
according to two labor brokers who declined to be
identified because they still do business with the car-
makers. The pain is spreading to other parts of the
economy. Suresh, 46, who goes by one name, runs a
sidewalk tea stall in front of a Daimler truck plant on
the city’s outskirts. His 20-year-old son’s contract job
as a machinery maintenance worker at an auto plant
wasn’t renewed after 18 months, and the monthly
loss of $160 to the family’s income stings. “I am left
with nothing to pay installments for my vehicle and
to pay for my daughter’s wedding,” he says.The slump in auto sales can be traced to the
distress in rural areas, which are home to 70%
of the population. Stagnant incomes there are
depressing demand for cars, as well as small-
ticket items such as shampoo and biscuits. In cit-
ies, the rise of ride-sharing apps like Uber has cut
into vehicle sales, while some buyers are deferring
purchases until stricter car emission standards are
introduced next year.
Then there’s the credit crunch. It began in the
banking system five years ago and has now engulfed
shadow lenders, the lightly regulated outfits that
accounted for almost 4 of every 10 consumer loans
in the three years through 2018. One of the largest
players, Infrastructure Leasing & Financial Services
Ltd., started to default on debt of almost 1 trillion
rupees ($14 billion) last year, further aggravating
the liquidity squeeze.
Consumption is the backbone of India’s econ-
omy, making up about 60% of gross domestic prod-
uct. So as sales of everything from Maruti Suzuki
compacts to gold jewelry have tailed off, so has GDP
growth: It dropped to a six-year low of 5% in the
three months through June. The unemployment
rate is already at a 45-year high of 6.1%, and if the
auto industry is any guide, it’s headed higher.
Having secured a second term in a landslide vic-
tory in May, Prime Minister Narendra Modi is fac-
ing the biggest economic challenge of his six-year
tenure. The finance ministry has announced some
support measures, such as tax exemptions for buy-
ers of electric cars and lifting a ban on government
purchases of vehicles. But those haven’t satisfied
the industry, which is calling for a big cut to the
28% goods-and-services tax rate on cars.
Modi’s earlier goal of raising the sector’s contri-
bution to GDP from 7% to 12% by 2026 now looks
overly optimistic. “I don’t see any recovery unless
the government intervenes and gives out some-
thing really big,” says Amit Mehta, managing direc-
tor of Mehta Automotive, a supplier to Maruti and
Hyundai Motor Co., which has been forced to lay off
almost half its workforce at a factory in the north-
western city of Ludhiana. “I don’t see the market
coming back this financial year.” �Anurag Kotoky
and Anirban Nag, with P R Sanjai● Car sales in India,
year-on-year change
30%150-1 5-301/2015 8/2019◼ ECONOMICS Bloomberg Businessweek September 16, 2019
29THEBOTTOMLINE India’sautomakersarepleadingforreliefin
the face of the deepest sales declines on record. Unemployment,
which is tracking a 45-year high, is headed higher.● Troubles in the world’s No. 4 car manufacturer
are rippling through the economyIndia’s Auto Boom
Goes Bust
It’s hardto escape theinfluenceof theauto
industry in Chennai, a city in southern India known
as the nation’s Detroit. Schoolyards have billboards
proclaiming they’re “supported by” big carmakers
such as Daimler, Renault, and Nissan Motor. Even
the public toilets in a nearby slum are sponsored
by the country’s largest tiremaker.
With a rising middle class and rapid urbaniza-
tion,thisshouldbeboomtimesforIndia’sauto-
motiveindustry,thefourthlargestintheworld.
Cardensity—measuredbythenumberofpassen-
gercarsper1,000people—wasonly 27 last year,
vs. 145 in China and 570 in Germany, according to
Fitch Ratings. That leaves huge potential for growth.
McKinsey & Co. projected in 2018 that India could
overtake Japan as the No. 3 car market by 2021.
Yet the mood in Chennai is one of gloom as an
unprecedented slump grips the industry. Passenger
car sales have contracted for nine straight months,
plunging to 115,957 units in August, a 41% drop from
the previous year—the biggest decline on record.
Automakers are cutting investment and produc-
tion;hundredsofdealershipshaveshutdown.
Nationwide,joblossesinthesector,whichemploys
morethan 32 millionpeopledirectlyandindirectly,
haveclimbedtomorethan580,000inthepast
18 months, according to estimates from labor unions
and auto dealers.
R.C. Bhargava, veteran chairman of Suzuki
Motor Corp.’s Indian unit, Maruti Suzuki—the coun-
try’s largest carmaker—describes the situation as
“quite bad” and predicts more job losses for the
industry. Maruti’s sales have contracted for seven
straight months, and the company said this month
it will halt production of passenger cars for two
days at two of its plants.
At least 60% of contract workers at auto plants in
Chennai have lost their jobs in the past few months,
according to two labor brokers who declined to be
identified because they still do business with the car-
makers. The pain is spreading to other parts of the
economy. Suresh, 46, who goes by one name, runs a
sidewalk tea stall in front of a Daimler truck plant on
thecity’soutskirts.His20-year-oldson’scontractjob
asa machinerymaintenanceworkeratanautoplant
wasn’trenewedafter 18 months, and the monthly
loss of $160 to the family’s income stings. “I am left
with nothing to pay installments for my vehicle and
to pay for my daughter’s wedding,” he says.
Theslumpinautosalescanbetracedtothe
distress in rural areas, which are home to 70%
of the population. Stagnant incomes there are
depressing demand for cars, as well as small-
ticket items such as shampoo and biscuits. In cit-
ies, the rise of ride-sharing apps like Uber has cut
into vehicle sales, while some buyers are deferring
purchases until stricter car emission standards are
introduced next year.
Then there’s the credit crunch. It began in the
banking system five years ago and has now engulfed
shadow lenders, the lightly regulated outfits that
accounted for almost 4 of every 10 consumer loans
inthethreeyearsthrough2018.Oneofthelargest
players,InfrastructureLeasing& FinancialServices
Ltd.,startedtodefaultondebtofalmost 1 trillion
rupees($14billion) last year, further aggravating
the liquidity squeeze.
Consumption is the backbone of India’s econ-
omy, making up about 60% of gross domestic prod-
uct. So as sales of everything from Maruti Suzuki
compacts to gold jewelry have tailed off, so has GDP
growth: It dropped to a six-year low of 5% in the
three months through June. The unemployment
rate is already at a 45-year high of 6.1%, and if the
auto industry is any guide, it’s headed higher.
Having secured a second term in a landslide vic-
tory in May, Prime Minister Narendra Modi is fac-
ing the biggest economic challenge of his six-year
tenure. The finance ministry has announced some
support measures, such as tax exemptions for buy-
ers of electric cars and lifting a ban on government
purchases of vehicles. But those haven’t satisfied
the industry, which is calling for a big cut to the
28% goods-and-services tax rate on cars.
Modi’s earlier goal of raising the sector’s contri-
bution to GDP from 7% to 12% by 2026 now looks
overly optimistic. “I don’t see any recovery unless
the government intervenes and gives out some-
thing really big,” says Amit Mehta, managing direc-
tor of Mehta Automotive, a supplier to Maruti and
Hyundai Motor Co., which has been forced to lay off
almost half its workforce at a factory in the north-
western city of Ludhiana.“Idon’tsee the market
coming back this financialyear.”�Anurag Kotoky
and Anirban Nag, withPRSanjai● Car sales in India,
year-on-yearchange
30%150-1 5-301/2015 8/2019