FM Nirmala Sitharaman kicked up a storm with her statement, “the millennial mindset of using Uber and Ola instead of purchasing vehicles had contributed to the auto sector slowdown.”
With the aspirational value for cars diminishing and the current city infrastructure making ownership of one an unappealing prospect, Uber and Ola have come up trumps.
Last month, on skidding sales and job losses in the auto sector, the Finance Minister revoked the ban on purchasing new vehicles for the government departments.
Automobiles purchased till March 31 next year can avail the benefit of additional depreciation of 15% with total depreciation up to 30%.
“The automobile and components industry has been affected by BS-VI and the mindsets of millennial, who now prefer to have Ola and Uber rather than committing to buying an automobile,” Sitharaman told reporters on September 10.
Sitharaman added that millennials do not want to commit to taking an equated monthly instalment.
Domestic passenger vehicle sales skidded for the 10th consecutive month, falling from 287,198 units in August last year to 196,524 units last month
The statements soon took centre stage on social media, which saw an overflow of memes on Sitharaman’s view by trending the sarcastic tags: #BoycottMillennials and #SayItLikeNirmalaTai.
However, could there be logic in Sitharaman’s theory? Here’s a look at why the finance minister could be right.
The BS-VI regulation
A major reason for demand stagnation can be attributed to the mandatory adoption of BS-VI regulations from April 1, 2020, with consumers wary of buying BS-IV compliant vehicles that would soon be obsolete.
In order to reduce vehicular pollution, the government decided to leapfrog from BS-IV to BS-VI vehicles.
Bharat Stage VI (BS-VI) is the most advanced emission standard for automobiles, which is equivalent to Euro-VI norms.
Auto Sector Slowdown: Car & fuel prices, parking, traffic, infrastructure and Ola-Uber
Auto sales have been slow for more than a year, with August sales falling 31.57 percent, the worst month in 19 years.
The sector slowdown has led to companies resorting to production cuts even as many dealers have laid off employees or shut shop themselves.
The cost of cars has jumped by 15% in the past nine months due to mandatory additions like an airbag, reverse sensors, ABS and crash conformity standards.
On the other hand, fuel prices have witnessed a steady increase, rising by 15% from August 2015 to August 2019, the data from the Indian Oil Corporation has shown.
The lack of adequate infrastructure services in crowded cities has led to heavy traffic congestion, a lack of parking, poor quality roads and reducing resale value.
All this has propped up ride-hailing platforms like Ola and Uber, especially in cities, where people prefer taking taxis for commute rather than owning and driving themselves, backed largely by India’s young workforce, the majority are millennials.
Where buying a car is expensive, maintaining it is also expensive, taxes mount, city infrastructures do not support the purpose of a vehicle and ride-sharing platforms willingly take on these burdens, millennials have made a lifestyle shift.
The whole ‘New World’ of Indian auto sector
During the Society of Indian Automobile Manufacturers (SIAM) convention in 2019, Uday Kotak, the chairman and managing director Kotak Mahindra Bank, emphasised that the auto sector needed to be aware of some of the major structural changes happening in the industry.
Kotak is clear: Uber and Ola are here to stay and so is the millennials’ preference for them. So, it is up to the industry, with appropriate government policies to adjust accordingly.
He has also shared a personal example that his son prefers cab aggregators, as cars are no more a status symbol and the young prefer better “capacity utilisation”.
In an earlier interview with Moneycontrol, Gautam Duggad, Head of Research – Institutional Equities at Motilal Oswal, also said that Uber and Ola’s impact would be visible on passenger vehicles sales over the long term.
“Ride-sharing apps is one of the megatrends may not get reflected immediately. The real impact will be visible over say five or a ten year period,” he said.
Already, auto majors have picked up the pace. Mahindra & Mahindra in February invested in Glyd.
This was the second foray by the Mumbai-based SUV specialist into the aggregator platform after having entered into app-based cargo aggregator business in 2015 through SmartShift.
On the other hand, the demand for Seltos and Hector is indicative of the evolution in the behaviour of Indian customers below 35 years.
All eyes on Sep 20 GST meet
Finance Minister Nirmala Sitharaman had on August 23 announced a few measures including 30% depreciation for new vehicles.
Still, people are not going to buy a new car, it seems like, banks are not willing to give auto loans so easily due to the current economic slowdown.
The industry has been seeking a reduction in GST rate on cars from 28% to 18% and with sales continuing to fall at an alarming rate.
All eyes would be on whether any reduction would be forthcoming at the next GST Council meeting on September 20 in Goa.