Indian automakers to benefit from Rs 85,000 crore bonanza for Central government staffers

Passenger car and two-wheeler manufacturers in India are likely to see sales spurt in the second half of 2016, thanks to the Union Cabinet clearing a big pay hike and putting plenty more money in the pockets of government staffers.

As part of the Seventh Pay Commission, cleared by the Centre, 4.7 million central government employees and 5.3 million pensioners will benefit from pay and pension increases ranging from around 14% to 23.5% with retrospective effect from January 2016. There’s benefit for the armed forces too from the One Rank One Pension Scheme for ex-servicemen.

This will be good news for automobile manufacturers who are already looking forward to reaping the benefits of a good monsoon which has set in most parts of the country.  Expect Maruti Suzuki India, the country’s largest car maker, to come up with a special scheme tailored for government employees. Each year, the company, whch has a massive database of government employees, typically sells around 200,000 cars to Central government employees, which constitutes around 17% of its total sales. This year, it is expecting to sell over 250,000 units across the country from its over 1,800 dealerships.

Likewise, Hyundai Motor India too along with other automakers will make a beeline for government staffers. With the festive season in India barely three to four months away, most OEMs will be looking to reap a rich harvest of sales with special offers.

Also read: Hyundai to offer additional Rs 7,000 on existing car discounts to govt employees and pensioners

Earlier this month, Tata Motors had announced an exclusive offer for Central and State government employees. Called ‘Trust of India,’ a dedicated initiative which focuses on building relationships and a strong customer base among government employees. This initiative offers them several benefits such as additional cash discounts or the option to buy extended warranty policy, AMC as well as accessories package on the purchase of their choice of Tata Motors’ passenger cars.

According to Mayank Pareek, president, Passenger Vehicle Business Unit, Tata Motors said, “The Trust of India initiative recognises and rewards the contribution of India’s valuable government employees as part of our institutional sales. We are committed towards building a strong and long-lasting relationship with our corporate customers and we look forward to being their preferred automobile brand of choice.” 

Two-wheeler OEMs foresee tubo-charged sales 

Yadvinder Singh Guleria, senior vice-president, Sales & Marketing, Honda Motorcycle & Scooter India, said: "Three things make the 7^th Pay Commission report stand out. One, the minimum pay for a central government employee has more than doubled from Rs 7,000 to Rs 18,000 per month. At Rs 1.02 lakh crore, the 7^th Pay Commission disbursements are more than triple that of the 6^th Pay Commission and will undoubtedly stimulate the demand with higher disposable income. For the first time, the 7^th Pay Commission arrears will be disbursed within the same financial year itself (unlike the 6^th Pay Commission arrears which were distributed 40:60 in two fiscals).

Secondly, the timing of disbursements is very positive for the industry. July marks the start of new college sessions and increased buying trend among the youth, and is followed by rural purchase in harvesting season in the second quarter and goes up to the end of the festive season in October.  
Thirdly, with the upcoming monsoon parliament session starting from July 18, all eyes are now on the GST bill which will simplify taxation and boost consumption even further. As the 7^th Pay Commission implementation also coincides with two more positive factors including favourable and timely monsoons and OROP disbursements, we expect that the two-wheeler industry growth may now be in higher single-digits in FY2016-17."

Commenting on the news, Roy Kurian, vice-president, Sales and Marketing, Yamaha Motor India Sales, said: “The dwindling economy will definitely get a major boost from this decision as spending capacity of government employees will increase. This is a welcome decision for the automobile sector and we are confident that sales will surge once this new pay scale is implemented in this year. It should be a great festive season for the entire industry.”

Speaking to Autocar Professional, Abdul Majeed, partner, automotive, Price Waterhouse, said: ""In my view, the implementation of the Seventh Pay Commission will definitely have a positive impact on auto sales across small passenger cars and the two-wheeler segment comprising both the scooter and the commuter motorcycle segment. Particularly, for the families of the pensioners, family scooters are much more appealing. Overall, this development has the potential to create a respectable surge in the demand for three segments -- small cars, scooters and motorcycles."

Inputs from Amit Panday