The Indian automobile industry has shown falling trends due to the financial risks surrounding its value chains. Current analysis of liquidity and managerial efficiency of auto companies depicts a deficit which further represents possible difficulties in the payment of current liabilities. The major effect of the weak lending scenario has been on the sale of new vehicles.
Tightening liquidity in NBFCs has made things more difficult as over 80% of new cars being sold are financed in India. Given the waning confidence in the economy, consumers seem reluctant to spend, resulting in low vehicle demand and forcing many auto dealers to shut down their operation in the recent past.
Hence, revival of lending by NBFCs is critical for improving demand in the industry. Auto dealers need to look at rotating cash to liquidate inventories. The government needs to proactively work towards improving the lending framework, especially for the Commercial Vehicle (CV) segment, and reshaping auto financing. This edition of Auto Bytes covers the changing financial risk management scenario for automakers.