What next for Nepal’s auto industry?

Ankit Shakya, Nepal Drives

Ankit Shakya, Nepal Drives

What next for Nepal’s auto industry?

Auto dealers have been unable to sell vehicles and they face a great burden to clear their inventories. The dealers will soon face liquidity issues because of the prolonged lockdown

With an increase in the number of tests, the number of Covid-19 positive cases has also been increasing rapidly. Still, these numbers don’t reflect the crippling effect the virus has had on the Nepali economy and on its people. Along with trade, tourism, and remittance, the auto industry looks headed for a sharp slump. But is there a silver lining in this dark cloud?

At first glance, it does not look all that promising. Like most other businesses in Nepal, Nepal’s automotive industry is dictated by the tunes of the Indian auto industry. So the news of a 15 percent dip in Indian car manufacturing (a 28-year low) does not bode well for us.

However, there is good news from our neighbor up north. According to reports, sales in Wuhan have reached 96 percent of what they were in the pre-lockdown period, within weeks of restrictions being lifted. There are predictions of the Indian Auto Industry taking a similar route.

The primary premise of this prediction is that people will want personal transport. Indian public transport (as in Nepal) has come to a halt, along with their ride sharing offerings like Ola and Uber. They have no mode of transport to get them from one place to another, even in an emergency. The unavailability of these services has made people think about owning a personal vehicle. Further, even after a certain normalcy is attained, there will always be the fear of getting the virus. People are thus likely to avoid a shared means of transport like public vehicles for a long time.

This lockdown has exposed the vulnerability of our dependency on public transport. It is this fear and desire for personal transport that hints at increase in vehicle sales, especially that of two-wheelers and small cars. Used or pre-owned vehicles may also see an increase in demand due to the desire to limit spending.

What about us?

But is there a possibility of a similar trend in the Nepali market? There are a few things to consider. Buying a personal mode of transport in Nepal is difficult due to the tax structure. For the majority of families, purchasing a car is likely to be the second largest investment of their lives. For many that dream is shot down to owning a motorcycle. For the vast majority of Nepalis, purchasing motorcycles and cars is a distant dream.

The economic divide in the country is stark and entrenched. Without delving too much into it, we’ll state the obvious. The people who can afford to buy a vehicle already have one, and some have several. And then there is a big economic distance between the ones who can and cannot afford to purchase.

But we cannot completely negate the possibility of an upturn in the purchase of vehicles in Nepal. There are many people who have pushed back their vehicle purchase for various reasons. There are people saving for a better model, waiting for their children to complete their SLC (SEE), or more realistically, saving money. For them, this could be the necessary push that makes them purchase a vehicle. There could also be consumers with large disposable incomes choosing to spend on vehicles rather than on outdoor activities like travel or experiential tours.

Restore the health

Herein comes the government. Covid-19 has disrupted the automotive industry at a time when it was already reeling under pressures of tight liquidity and inept governmental controls. Even before the lockdown, industry insiders were pessimistic about their growth prospects. As we are a dealer-based market, this lockdown will further increase the level of debt and choke sales.

NADA Automobiles Association of Nepal, the governing body of automobile dealers in Nepal, recently issued a six-point recommendation. It urged the government to bring a relief package to overcome the impact of the Covid-19-induced lockdown on the automobile industry. Among other suggestions were waiver of demurrage and container detention charges, extension of the period for paying bank interest installment up to six months, and introduction of a relief package. Although the automotive sector is a major contributor to the economy, the government’s clunky assessment is likely to deepen the woes of the auto dealers.

Auto dealers have been unable to sell vehicles and they face a great burden to clear their inventories. The dealers will soon face liquidity issues because of the prolonged lockdown. Also, the market remains constricted with a high taxation structure discouraging the prospective buyers. Hence a significant amount of government support is needed to improve this sector’s financial health.  

According to a report by Deloitte, a prolonged truncation of consumer demand as countries work through various lockdown scenarios may spark a global recession, leading to widespread loss of consumer confidence, significantly impacting automaker revenues and profitability. In response, auto companies may choose to exit unprofitable global markets and vehicle segments.

That said, it is still difficult to foresee the economic repercussions that the Covid-19 fiasco will have on the country and on the world. For now the best we can do is to expect a positive outcome. Until then, we hope the world finds the resilience to battle this pandemic. Stay Safe.