The Automobile Industry has been enjoying quite a good run in India enjoying a growth rate of over 8.6 %. But the government's decision to demonetize 500/1000 currency is likely to hit the aspirations of automobile lovers.
The problem here is that most of the Indian buyers live in the rural areas. Most of the sales and business transactions in these areas take place in cash. So till the time people don't shift to debit/credit card transactions, it is going to be a problem. The immediate effect of demonetization is that the automotive industry closed down on a loss of 2.5 % on its shares. And technically 85% of the existing Indian currency is now no longer useful, all of them need to be exchanged.
On the other hand, while the rules don't require the buyers to provide with their PAN ( Permanent Identification Number ) for buying two-wheelers like bikes and scooters, it is mandatory for the buyers in luxury car segment. It is easy to write down facts, but these solutions are not going to come easy. As India is an economy where 90% transactions are done in cash. Be it rural or be it urban
. Yes, these changes are temporary but it is going to effect the purchasing power of Indians amongst all income groups. Even in this scenario the showroom dealers would not accept the currency payments in 500/1000.
The most adverse effect will be seen in the used cars segment as evidently all the transaction for buying used cars are done in cash in the country. Even the premium cars segment such as the SUV's and high end luxury cars depend on liquidity of buyers, payments being made in cash. However the mid-car segment mostly won't be affected. The experts are on an opinion that this dip is temporary and The Automobile Industry is likely to benefit in the long run.
What is important to this equation that the purchasing power of the common man has been tied to a cashless economy for now. And it will also impact the advance bookings for a couple of months.As a logical consequence, most people will prefer spending on necessities such as utility bills and daily needs. And the desire to spend on new vehicles will take a back seat.
But we will have to wait untill the things settle in. The money people have in their bank accounts is also tied to prior commitments such as paying home loans and monthly/yearly savings. A huge buyer segment, the traders who deal only in cash also contribute to major car/bike sales.
But the buyers must not feel let down, as most of the people would like to save cash in their bank accounts. It will most likely be a boom in 2017 as the reduction in money flow will be a profit to RBI. And in turn it will increase your purchasing power. The Automobile Industry is likely to benefit hugely as the buyers enjoy more purchasing power with their existing money.