Auto industry facing acute crisis of overproduction

ThumbUnsold stocks of two-wheelers and cars produced by Maruti, Ashok Leyland, Hero, Honda, Hyundai, Bajaj and other major car and two-wheeler manufacturing companies have been piling up for some months now. Automobile sales had slowed down in 2018-19. Now in 2019-20, they have started to decline in absolute terms.

Unsold stocks of two-wheelers and cars produced by Maruti, Ashok Leyland, Hero, Honda, Hyundai, Bajaj and other major car and two-wheeler manufacturing companies have been piling up for some months now. Automobile sales had slowed down in 2018-19. Now in 2019-20, they have started to decline in absolute terms.

Unsold cars piled up

According to the Society of Indian Automobile Manufacturers (SIAM), sale of passenger cars grew by less than 3% in 2018-19, its slowest growth in a decade. By August 2019, growth had turned negative. Passenger car sales were 41% less than in August 2018, while two-wheeler sales were 22% less.

The capitalist owners of the auto companies have responded to the fall in sales by cutting back on production. They have thrown lakhs of contract workers and temporary workers out of jobs.

While less than a dozen big auto companies assemble the parts of cars, two-wheelers and three-wheelers produced in India, hundreds of different components of these vehicles are produced and supplied by thousands of factories. Auto component makers include many medium and small-scale units. The auto components sector employs many more workers than the automobile companies. Production cutback by the auto companies has affected the demand for auto components. It has led to production cutbacks, closures and massive job losses in the component making units.

While roughly 3,00,000 jobs are estimated to have been destroyed in the auto industry so far, expected job losses in auto component units is more than double that number. Total job losses in auto and auto components sectors, taken together, are predicted to hit 10 lakhs soon, or one million.

Gurugram and Manesar industrial area is one of the country’s largest auto producing hubs. Major companies such as Maruti Suzuki, Hero Moto Corp and Honda Motorcycle & Scooter are located there. There are nearly 1000 medium and small ancillary units supplying raw materials and auto parts. Each of these units employ 20 to 200 workers. It is learnt that around 50,000 to 100,000 workers have already lost their jobs in this area alone.

Many suppliers of small parts have completely shut down their operations and removed all workers. Rajesh Shukla, General Secretary of Hero Moto Corp, is reported to have said, “Part suppliers are the backbone of manufacturing and they along with their sub-vendors are the first ones to get impacted by the slowdown.”

Those engaged in transporting auto parts and finished products have also been hit hard. “Truckers that used to bring raw materials for the whole industry and transport the finished vehicles to dealerships are stranded for months, as work has dried up,” said Kuldeep Janghu, General secretary of Maruti Udyog Kamgar Union.

The situation is not very different in other auto hubs, such as Pune and Sriperumbudur and Oragadam near Chennai, where Ashok Leyland, TVS and foreign multinationals like Ford, Toyota, Volkswagen and others are located. All these companies have cut down their working days and laid off contract employees. Massive job losses have led to a decline in numerous manufacturing and service activities linked to the auto industry.

The monopoly capitalists who own controlling shares in the major auto companies have demanded immediate action of the part of the Central Government. They want the Government to protect their profits by helping to expand sales. They want a reduction in the GST rate so that the market price of cars and two-wheelers will come down to some extent. They are hoping that lower prices would induce more people to buy new vehicles. It is a proposal which means foregoing public revenue for the sake of protecting the private profits of a few monopoly capitalists, Indian and foreign.

Given the enormous clout and influence wielded by the auto sector capitalists, it is not surprising that the Central Government has responded promptly to their demands. Ban on government purchases of new cars has been lifted and an additional 15% depreciation has been allowed on vehicles purchased on or before 31 March, 2020. Reduction in GST rates has also been recommended by the Ministry of Finance to the GST Council.

The Central Government is dealing with the crisis facing the auto sector as if it is a problem peculiar to this sector alone. However, facts show that the problem is inseparably connected with the general economic conditions of the majority of people in the country. The same factors which are leading to a decline in purchases of new vehicles are also causing a decline in purchases of other consumer durables such as air conditioners, TV sets and refrigerators.

Decline in the net incomes from agriculture and the prospect of sinking further into debt are factors which are preventing many rural families from spending on new purchases of durable goods. Rural demand accounts for the major share of two-wheeler sales in the country.

The Note Ban of 2016 and introduction of GST in 2017 have led to many peasants and small business families suffering losses and postponing their plans to purchase new vehicles. Job losses in the IT sector in 2017, and in the telecom and other sectors in 2018 are among the factors which have prevented many urban families from making any new purchases on credit.

When large numbers of workers lose their jobs, it affects the spending decisions of all workers. Even those who are still employed hesitate to make new purchases, fearing that if they too lose their jobs they will be unable to pay the EMI. Thus, higher levels of insecurity about future income on top of low wage growth and growing unemployment have had a dampening effect on the demand for consumer goods.

The source of the problem is that the capitalist system has become so parasitic that economic growth not only creates wealth at one pole and poverty at the other pole; it also destroys more jobs than it creates.

Both when the Congress Party was heading a coalition government and now when the BJP is at the helm, monopoly capitalists have been extracting maximum profits through the highest possible degree of exploitation of labour and plunder of natural resources. They have also been exporting more and more of their capital overseas. As a result of rising levels of unemployment, declining real incomes and growing insecurity about the future, shortage of consumer demand has become a constraint to the growth in production.

It is a crisis of overproduction, a phenomenon peculiar to the capitalist system. What is produced cannot be sold because the majority of the population cannot afford to buy them.

A sector-specific stimulus package may temporarily help to prevent further decline in auto sales. However, it does not address the root cause of the problem, which is the impoverishment of workers and peasants.

As long as the means of production remain concentrated in the hands of a small minority as their private property, and production remains geared to maximize capitalist profits, the economy is bound to repeatedly get caught in crises of overproduction.

The solution to the problem requires a complete reorientation of the economy. The ownership of the means of social production must be taken out of the hands of monopoly capitalists and brought into the hands of the working class and other toiling people. Those whose toil creates the wealth of India must become her ruler. Only then can the process of social production be geared to fulfil the rising needs of all members of society. Only then can society ensure protection and prosperity for all. Only then can “sab ka vikas” become a reality.


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