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Auto sector likely to see 30-40% decline in ad spends post demonetisation

30-November-2016
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Auto sector likely to see 30-40% decline in ad spends post demonetisation

The effect of demonetisation has cast its spell across sectors, from FMCG to OOH. The market is witnessing an unexpected crisis, which according to experts, is going to last for some time.  

One of the critical sectors, the auto sector, is reeling under the effect of demonetisation. According to data released by the Federation of Automobile Dealers Association (FADA), the footfall at the dealerships across India has dipped by 75 percent and bookings have come down equally by about 50 per cent.

Given the fact that auto sales contribute 8 per cent of overall media spend, the crucial question to ask is: has demonetisation impacted the ad spends of auto players?

Explaining the impact of demonetisation on auto sector ad spends, Sunish Kumar, National Head, Sales, Girnarsoft, which owns the auto portal Cardekho.com said, “Demonetization has already led to a downward trend on the media spends in this sector. Though advertisers have been active on certain mediums like print but digital is still to recover from the slump. We have seen around 30-40% decline in the ad spends compared to the expectations based upon yesteryears trends.”

Incidentally, the government of India recently released its 2016 ‘Make in India Automotive Sector’ achievements report to highlight progress made under the central government's famed ‘Make in India’ initiative.

The report claimed that the Indian automotive industry has been on a growth trajectory since the last two years. During this period, sales, production and exports have seen impressive spikes. The report also highlighted the country's automotive industry's standings, with respect to the global market. It must be mentioned that India is the largest tractor manufacturer, 2nd largest two- wheeler manufacturer, 2nd largest bus manufacturer, 5th largest heavy truck manufacturer, 6th largest car manufacturer and 8th largest commercial vehicle manufacturer.

However, demonetisation seems to have reversed the positive developments. Even the story of the two wheeler sector is no different. As per reports, footfalls across major two wheeler brands dropped to 15% soon after the demonetisation drive was announced. The same is true for the second hand auto market which is badly affected as transactions are mostly done in cash. In states like Delhi and Punjab, most of the second hand  auto dealers have reported 50 per cent drop in sales and experts suggest that the collective revenue loss in the second hand auto market pan India could  be up to Rs 3900 crore.

In the wake of the de-monetisation of the INR 500 and INR 1000 notes, Honda Cars India Ltd. (HCIL) recently announced 100% on road and ex-showroom funding deals so that the car sales are not adversely affected.

Speaking about how demonetisation has impacted the auto sector, Jnaneswar Sen, Senior Vice President, Sales and Marketing, Honda Cars India Ltd. said, “In the wake of de-monetization of 500 and 1000 rupee notes, there will be a big effect on the overall car buying process and the cash component buying is expected to go down. Also the margin money contribution will be affected for all customers. To ease deal closure and give comfort to the customer we have negotiated 100% on road and ex-showroom funding deals with HDFC, AXIS, and ICICI Bank.”

With auto sector facing the brunt of the demonetisation move, it will be months before the numbers for sales and ad spends match the figures prior to November 8.

Banking on the upcoming festive season, Sen is hopeful that auto sales might reap the benefits of the booking rush. He adds, “The sector is still trying to understand the sentiment of the buyers and working on innovative schemes and offers to get the buyers back.  We are hopeful that December should be better month as a lot of communication around offers, year-end deals and finance deals will be floated by the OEMS.”

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Prior to joining Madison PR in 2012 Chaudhary was Group President Corporate Communications at Reliance Industries Limited.