Passenger vehicles sales are headed towards posting their steepest yearly decline in nearly two decades, suggest market trends, as slowing economic activity, high vehicle prices, shortage of financing options and weak rural sentiment weigh on demand.

The slowdown has in fact been across the automobile industry, with commercial vehicle and two-wheeler sales too taking a hit. The industry has been seeking a stimulus package, such as easier GST rates, to ride out the tough market that manufacturers claim is also hurting the government's tax collections and costing jobs.

In the first seven months of 2019, passenger vehicle sales dropped 13.2% to about 1.76 million units, according to data from the Society of Indian Automobile Manufacturers (SIAM).

In July, passenger vehicle sales dropped almost 31%, underscoring the difficult market condition that the industry is going through. In July, passenger vehicle sales dropped almost 31%,underscoring the difficult market condition that the industry is going through. The steepest annual drop so far since 2001 was 7.5%, recorded in 2013.

Sales of commercial vehicles in the past quarter dropped 9.53%, the most in five years. In the two-wheeler segment, sales fell 11.68% in the April-June period, the steepest since the third quarter of 2009.

"The (automobile) sector has been hit from all fronts," said a director at a ratings firm. "On one hand, acquisition price or running cost has gone up severely, (while) on the other, liquidity is also a major challenge. Even the salary growth has been muted which has further impacted the buying sentiment adversely."

The firm expects all segments of the market to register a decline of 2-8% in sales in financial year 2019-20, he said. "Next year, too, the market is expected to remain sluggish."

R.C. Bhargava , chairman, Maruti Suzuki, blamed several factors for the slowdown. "The cost of acquiring vehicles has gone up sharply the past year. Regulations on safety have come in along with those on higher emission norms, raising vehicle prices. Insurance costs have risen, some states have levied additional taxes," he said. Also, despite rate cuts by the Reserve Bank of India, financing costs have gone up, he added.

The ratings firm's data show the cost of ownership has jumped 12-15% for cars and 20% for two-wheelers in the past year, as against the decadal average of 4-5%.

Availability of finance to the automobile sector has reduced as a credit crisis hit non-banking finance companies, a key source of loans in the atuo industry. Stricter lending rules put in place by banks and other lenders made raising working capital further difficult for dealers as well.

Uncertainties in the minds of consumers over the government's vehicle electrification drive added to the woes, said industry executives. "Although the government has not said anything about electric four-wheelers, somehow consumers are under the impression that low-cost electric cars are around the corner ? (and) they can avail of income tax rebates on purchasing such cars," said Bhargava.

The Maruti Suzuki chairman is not hopeful of any immediate revival in the market unless the government puts in place some incentives.

Anand Mahindra, the chairman of Mahindra & Mahindra, said shortterm measures to kick-start demand in the auto industry "will serve a greater national purpose".

"Think about it: according to SIAM estimates, the slowdown has resulted in an 8% loss in GST collection in the first six months of 2019. Just to catch up with the financial year 2018-19 GST collections, the auto industry will need to grow at a rate of at least 7% in the remaining eight months of the financial year 2019-20," Mahindra said.

"The most obvious and welcome first aid" is a temporary relief on the GST front, "either by modifying the slabs, or, if that is not possible, by removing the cess", Mahindra said. Another suggestion would be a re-look at the registration fees which have gone up very substantially and a roll back of the increases in road tax mandated by state governments after the introduction of GST, he said. "I'm hopeful that these few actions along with the traditional post monsoon revival will set us back on track and positively impact the economy."

Meanwhile, many customers have chosen to hold on to purchases hoping that they would get BS-IV vehicles at heavy discounts next year, before India adopts the more stringent BS-VI emission standards in April 2020. "Automakers this time are aware of the switch-over deadline and are unlikely to build up year-end inventory triggering a distress, Maruti Suzuki is unlikely to have one," said Bhargava.