Mitigation Project

Risk Management in Automobile Sectors

By-
Anandita Singh
Manoj Yadav
Sameer Khan
Shreya Gupta
Swarnima Jain
INTRODUCTION

What is risk?

In simple terms, risk is the possibility of something bad happening. Risk involves uncertainty
about the effects/implications of an activity with respect to something that human’s value, often
focusing on negative, undesirable consequences.

Risk Analysis is the procedure for detecting and analyzing prospective matters that could give a
baleful impact on business enterprises, so basically it is a component of risk management and the
review of the risks associated with a specific circumstance.

Risk analysis is playing a significant role in addressing the concerns of industrial jeopardy. In the
automotive industry, risks that remain unidentified can proceed to a loss in the aim of
productions as well as safety measures. Firstly, manufacturing cars is not an “easy” business and
the competition is too savage. The automotive industry has entered in a new era that leads
towards the electronic and self-driving cars. In the automotive industry, risks that remain
unevaluated may result in loss of production targets, vehicle recalls which may cost a lot to the
industry perhaps resulting in a doomsday for the industry.

PROBLEM STATEMENT

1. Consumers' willingness to buy cars has diverged and will decrease in the short term-
The willingness to purchase a car of some first-time potential consumers will be strengthened by
controls on public transportation in some areas or a desire to avoid crowds due to public health
considerations. However, consumers who already own a car are generally more inclined to wait
and see when it comes to purchasing upgraded models. Due to the challenging conditions for
small and mid-size enterprises amid the NCP outbreak, potential customers of this segment
might reduce their willingness to buy and target price range due to concern about their incomes.
In addition, the inconvenience caused by the epidemic has further reduced impulse consumption
demand. Consumer nowadays doesn’t want to purchase card because of increasing availability of
ola & uber in cheap prices. While using ola and Uber you don’t have to pay any maintenance
charges fuel charges, no down payment, no emi. So millennial prefer to use ola uber.
2. Pollution- As automobile is the one of the main reasons of pollution in inda. Indian govt. is
also giving subsidies on purchasing EVs in this way indirectly govt. is planning to remove
automobile industry in petrol or diesel. Pollution is also the reason now millennials are now
shifting more towards public transport. If more millienals are using public transport then it’ll also
be a big risk for automobile industry their sales will rapidly go down.

Most of the activities related to the automobile industry, directly or indirectly, have significant
impact for the environment. Direct activities are connected to the production and use of the
vehicle, while indirect are related to all other activities that are not controlled by the sector but
influence its overall picture such as the production and distribution of raw materials. Automobile
manufacturers are aware of the problem and the steps towards a more sustainable sector are
obvious... The major pollutants which contribute to air pollution include radon, volatile organic
compounds, formaldehyde, biological contaminants, carbon monoxide, carbon dioxide, sulphur
dioxide, hydrocarbons, nitrogen oxides sulfur dioxide, ozone, total suspended particulate matter,
lead and toxic pollutants.

3. Tax Policies- Tax policies also a big risk on automobile industry. Here we can take an
example of tesla like how Tesla is working so hard with the Indian govt. over taxation policies.
Because in India tax policies are much higher. If any country’s tax policy is much higher than in
that case it is very difficult of the automobile industry to survive in any market. If tax will
increase price of car will increase and sales will do down that’s how this is risk for automobile
industry.

IMPLICATION OF CHALLENGES

The willingness to purchase a car of some first-time potential consumers will be strengthened by
controls on public transportation in some areas or a desire to avoid crowds due to public health
considerations. However, consumers who already own a car are generally more inclined to wait
and see when it comes to purchasing upgraded models. In addition, the inconvenience caused by
the epidemic has further reduced impulse consumption demand. Furthermore, using public
transport, rental services such as Ola, Uber etc. helps people to travel easily at their own
convenience.
Using such transport can save up to four times the money you use commuting in your private or
personal car. The regular use of your personal car will require the costs of maintenance and other
additional charges such as parking fees, emission tickets, and speeding fines. By using public
transport, people are able to save all the money directed to such miscellaneous expenses of using
a personal vehicle. For instance, a cross country train trip takes much more less time to reach the
various defined destinations compared to the time it takes to reach the same destination in your
own personal car.And day by day facilities like this are coming with up to date technologies so
that in directly a risk to the automobile industry as now people finds it not very useful to spend a
heavy amount in buying a luxury car for themselves instead they prefer to take advantages of the
rental services available. And data says that the sales has gone down in the automobile sector
specially at the time of pandemic as there in no money in the market and people are not willing
to spend money because of the economic situation in the country. Specially the younger
generation in our country do not prefer to have their own private vehicle instead they are finding
the ola , uber taxi services more convenient for them for the daily basis and find them better than
owning a personal car or a better alternative for personal car. The youths and the working class
prefer Ola and Uber as it is cheaper and easily available at their doorstep.

Impact of the above situation is very serious as having the willingness of Private car is on a
decline since some time now and this is heavily impacting The automobile industry and the
graph has already been showing sluggish sales, which has hence been aggravated by this the
facilities available now. Due to problems such as traffic congestion, rising commute times and
hassle in parking, people have started to show a unanimous preference towards public transport
and ubiquity of cab-hailing and ride-pooling options.In order to do something about their
sluggish pace in sales, the industry will have to change according to the changing trends.

Environmental impacts such as pollution at several steps of the production process right from
sourcing of raw materials, to the manufacturing and assembly process, to the pollution caused by
use of the vehicle, and finally the impact caused by its disposal. Vehicles are the core of the
automobile industry since they alone generate about 80 per cent of the total life cycle pollution.
The result of this situation forced government to take some strict actions to control the pollution
such as Tax on cars collected at source is 1% which means 1% tax has to be paid by the buyer to
the seller of the car. The shift from fuel cars to electric vehicles and now every 2 wheeler of 4
wheeler automobile company is focusing of bringing the electric vehicles as soon as possible in
the market because gradually y the mind-set of the people will also shift from fuel cars to electric
vehicles also the sudden increase in the price of diesel and petrol is because of the
pollution.Electrification of transport remains one of the main agenda of the government for
which it has already started using electric vehicles. In order to control the pollution something
has to be done so the government decided to take certain actions and The Administration has
come up with a new move to take control of the current economic and environmental situation as
the contribution of pollution in our country is mainly because of the vehicles.

In the goods and services tax (GST) regime, India levies one of the highest taxes on vehicles
among key world markets when compared with the GST equivalent value-added tax (VAT)
levied in other countries. Cars and two-wheelers attract a GST rate of 28 per cent in India and a
cess that ranges from 3 to 22 per cent, taking the effective tax rate to up to 50 per cent.

After the introduction of electric vehicles, 5 per cent lower GST along with the aid by the
respective state governments (in terms of lower to no registration costs) were beneficial for the
electric car segment. Having invested a lot in cars with IC engines, the luxury car makers request
the same. Tesla has urged Indian Prime Minister Narendra Modi’s office to slash import taxes on
electric vehicles (EV) before it enters the market, Tesla wants to begin selling imported cars in
India this year but says taxes in the country are among the highest in the world. Its request for tax
cuts.

And the impact is really strong as the Car ownership will fall in two categories—first is the cost
of purchasing a car and the second would depend on the costs associated with running the
vehicle in the form of fuel, wear and tear, regular maintenance etc. In context of the first
category, several taxes are levied on vehicle purchase, such as goods and services tax of 28%,
vehicle registration tax, road tax, besides spending on an insurance cover, which is key to
safeguard one’s investment in a vehicle. Then there are expenses incurred on fuel, where we
have excise and VAT which are kept outside GST. These taxes and maintainece cost raise
ownership costs of cars at the higher amount.
PROPOSED SOLUTIONS

1. Consumers’ willingness to buy cars has diverged and will decrease in short term- Indian
Auto sector saw one of its best times during the surge of Ola and Uber and other cab aggregators.
Ola and Uber came into existence during last 6-7 years. In this period, the auto industry also saw
some of its best times. So, what happened only during last few months that the downturn became
so severe? I do not think it is only because of Ola and Uber.

US market which has seen robust auto sector in spite of Uber which is a big player there. “India,
46 per cent of the car buyers are first time users. It is an inspirational behavior. People may use
public transport like Ola and Uber to go to offices on weekdays, but still they buy a vehicle for
the weekend outings with the family,”

The finance minister has said the government is working on ways to deal with the situation and
the goods and services (GST) Council will decide on cutting goods and services tax on
automobiles, which attract a 28% rate now.

In our view, this concurrent downturn across five segments remains a tale of two cities. While
the commercial vehicles, tractors, and construction equipment segments are inherently cyclical –
and after the robust industry growth years of 2015 through 2018, a cyclical correction was due,
albeit not this deep – the segments of passenger cars and two-wheelers are supposed to
demonstrate sustained growth, correlated to the rising income demographics of a large and
advancing emerging economy. The fact that the latter two segments have witnessed declining
sales beckons a fundamental relook at what it would take structurally to return to high-growth
through six proactive actions the industry ecosystem – the incumbent OEMs (Original
Equipment Manufacturers, i.e., vehicle makers), suppliers, dealers, financiers, shared mobility
providers, government, and industry associations – must put in place.

2. Pollution- The important fuel that are considered as meeting the above criteria include Natural
Gas (CNG/LNG), Propane (LPG), Ethanol, Methanol Diesel, Electric fuel, Hydrogen, Di-methyl
Ether(DME), P-series, Fuel Cell and Solar fuels. Indian Government has taken various initiatives
time to time for the development and promotion of cleaner alternative to conventional
automotive fuels i.e. diesel and gasoline.
To adhere to the stringent emission norms, it is imperative that both fuel specification and engine
technologies go hand in hand. Fuel quality specifications have been laid down by the BIS
(Bureau of Indian Standards) for gasoline and diesel for the period 2000-2005 and beyond 2005
for the country (13,14). Given the increased usage of diesel in our country, it becomes necessary
to reduce its Sulphur content, which for Bharat IV has been reduced to 50 ppm. For gasoline,
lead was phased out in the entire country w.e.f. February 01. 2000.

In India, the Petroleum Conservation and Research Association (PCRA), an autonomous

Also Inspection and Maintenance plays an important role in control of emission. It is possible to
reduce 30-40% pollution loads generated by vehicles through proper periodical inspections and
maintenance of vehicles (15). Inspection and Maintenance measures for in-use vehicles are an
essential complement to emission standards for new vehicles. In India, the existing mechanism
of Inspection and Maintenance is inadequate. Thus, there is a great need to establish effective
periodic Inspection & Maintenance program.

3. Tax Policies- Under the current taxation system, an additional cess ranging from 1 percent to
22 percent is levied on automobile purchase, depending on the length, engine size and type of the
vehicle. That is over and above the highest goods and services tax (GST) of 28 percent that cars
and bikes already attract.

Beside, the customer has to pay a one-time motor vehicles tax, also called as road tax, which is
imposed by the central and state governments on motor vehicles and road usage. Most states
have adopted increasing the road tax structure on automobiles to earn revenue. Higher road tax
further pushes the cars on road price which makes car purchasing improbable under present
circumstances.

At present, the automakers in India are demanding a drastic cut in GST rates from 28 percent to
10 percent for a limited period of time, in a bid to boost sales and generate revenue after covid
outbreak has brought the economy to a standstill. Emphasizing on sector oriented policies; the
NITI Aayog said that taxation and duty structure for industry should be framed in unison. The
industry must unite and stop working in silos. From component manufacturers to dealers, all
should think along in the same line and recommend a possible solution, which should be a win-
win for government as well as for entire ecosystem.

Typically in an auto cycle the investor is being able to take back 25 percent to 100 percent of
their investment back under the state incentives scheme. Explaining the other dimensions of the
scheme, the policy also provides exemption from stamp duty, electricity duty, refund and the
subsidies in the nature of power tariffs along with capital and interest subsidies.

In the automotive sector, scale-effects benefit the entire ecosystem across vehicle manufacturers
and suppliers (with cost structure reducing by 12-15% with a doubling of scale), dealers,
consumers, and the government. Building scale requires moving towards a lower tariff structure
(e.g., optimal GST for the sector, simplified and lower taxation on fuel) and optimal credit rates.

EVALUATION OF CHOICES

Pollution- We have taken this as our 1st priority as Indian Government has taken various
initiatives time to time for the development and promotion of cleaner alternative to conventional
automotive fuels i.e. diesel and gasoline.

Diesel Particulate Emissions and Control, There is a need for continued research on particulate
control technology, including the regeneration systems, to reduce the cost and complexity of
these systems and the associated fuel economy penalties. Work needs to continue with various
additives, substrate materials, regeneration systems, and controls to develop optimum systems
that are able to decrease the diesel particulate emissions to the levels of 0.1 g/bhp-hr for heavy-
duty diesels and 0.08 g/mi for light-duty vehicles required in California. In conjunction with this
research there is a need to measure the metal species and the size distribution of the particles
coming from diesel particulate traps.
The fuel efficiency standard is applicable for all types of vehicles, including cars, trucks and
buses. According to government projections, the country could save up to $36 billion if fuel
efficiency is improved by 50% by 2030 in all sectors.

Emissions Measurement Methods, Studies should begin immediately with an evaluation of the
best available emissions data on engines operating with and without emission control devices, to
determine which of the unregulated pollutants really pose a potential threat to human health.
Other unregulated pollutants might be added to this list if their concentrations reflect engine or
emission control device performance. Next, every effort should be made to improve the
analytical procedures presently used to measure the concentrations of those pollutants, to the
point where they can be readily carried out by technicians. There is a great need to establish
effective periodic Inspection & Maintenance program. And also push for more Electric vehicle
so that pollution can be at check.

Tax Policies– We have taken this as our 2nd priority as the tax policies have led to decreased
burden on consumers, which previously was more when India had VAT. Currently Road tax and
all increases the prices of the car further and this further reduces the pocket of consumer. Due to
covid there was a steep fall in the demand of the car. The government later on reduced GST on
car in order to boost the car market.

There are a lot of free services/warranties offered by the car manufacturers due to the
competitive nature of the industry. These free goods/services were not taxed under previous tax
laws. Under GST, the free services/ warranties would also be subjected to taxation.

Consumers’ willingness to buy cars has diverged and will decrease in short term- With
increased demand for ola and uber cab there has been significant decrease in the sell of cars. Ola
and uber had contributed to automobile sectors boom in short term and the willingness from
consumers to purchase car had reduced significantly. With the Covid coming into action there
was a trend reversal as more and more people wanted to travel in their own car. In a survey
conducted by ET Auto, Almost 57% Indian consumers willing to purchase cars in 2020.
TALK WITH AN INDUSTRY EXPERT

We got in touch with a couple of senior level people from Maruti Suzuki India Limited, which is
formerly known as Maruti Udyog Limited, it is an Indian Automobile Manufacturer, based in
New Delhi. It was founded in 2001 and owned by the Government of India until 2003, when it is
was sold to the Japanese automaker Suzuki Motor Corporation. As of September 2021, Maruti
Suzuki has a market share of 49 percent in the Indian passenger car market.

When talking to the one of the senior employees of Maruti Suzuki named Ashish Kumar, we
come to know the Maruti Suzuki facing the problem of Consumer willingness to buy. The reason
he stated the given problem are as follows –

1. Clients' availability to buy vehicles has isolated and will lessen for now- The enthusiasm to
purchase a vehicle of a couple of first-time potential buyers will be built up by controls on open
transportation in specific locale or a hankering to avoid swarms on account of general prosperity
examinations. In any case, customers who presently own a vehicle are generally more inclined to
look out with respect to purchasing updated models. As a result of the troublesome conditions for
nearly nothing and reasonable size endeavors amidst the NCP discharge up, expected customers
of this piece might decrease their capacity to buy and target esteem range in light of stress over
their income. Besides, the weight achieved by the plague has also reduced inspiration usage
interest. Customer these days would prefer not to purchase card because of growing availability
of ola and very in unassuming expenses. While using ola and uber you don't have to pay any
upkeep charges fuel charges, no down payment, no emi. So twenty to long term olds are jumping
at the chance to use ola very more as a technique for transport in unobtrusive rpcies. That is the
explanation our social affair believes that this one the most serious risk for the vehicle business.

2. Pollution- As auto is the one of the essential reasons of defilement in inda. Indian govt. is
furthermore giving appointments on purchasing EVs thusly indirectly govt. is needing to wipe
out vehicle industry in oil or diesel. Pollution is furthermore the clarification now twenty to long
term olds are as of now moving more towards public vehicle. In case more millienals are using
public vehicle, it'll similarly be a significant risk for automobile industry their arrangements will
rapidly go down.Most of the activities associated with the vehicle business, clearly or indirectly,
have basic impact for the environment. Direct activities are related with the creation and usage of
the vehicle, while meandering are associated with any excess activities that are not obliged by
the area yet sway its overall picture like the creation and spread of regular substances. Car
creators are familiar the issue and the means towards a more sensible region are plainly
obvious... The huge toxic substances which add to air defilement fuse radon, unusual regular
blends, formaldehyde, natural unfamiliar substances, carbon monoxide, carbon dioxide, sulfur
dioxide, hydrocarbons, nitrogen oxides sulfur dioxide, ozone, complete suspended particulate
matter, lead and destructive poisons.

3. Charge Policies- Tax systems also a significant risk on vehicle industry. Here we can take a
representation of tesla like how tesla is locking in with the Indian govt. over charge assortment
plans. Since in india charge systems are much higher. Expecting any country's evaluation
procedure is much higher than everything considered it is incredibly difficult of the auto business
to make due in any market. Expecting cost will construct cost of vehicle will addition and
arrangements will truly down that is the means by which this is danger for car industry.

According to him, the solution which their company is came up with is, this synchronous droop
across five parts remains an account of two metropolitan networks. While the business vehicles,
ranch trucks, and advancement equipment areas are characteristically monotonous - and after the
enthusiastic business improvement extended lengths of 2015 through 2018, a rehashing change
was normal, yet not this significant - the parts of voyager vehicles and bicycles should show
upheld improvement, connected with the rising compensation economics of an immense and
advancing emerging economy. The way that the last two sections have seen declining bargains
captivates a key relook at what it would take principally to return to high-advancement through
six proactive exercises the business natural framework - the officeholder OEMs (Original
Equipment Manufacturers, i.e., vehicle makers), suppliers, merchants, specialists, shared
flexibility providers, government, and industry affiliations - should set up.To stick to the serious
release norms, both fuel specific and engine propels really ought to go inseparable. Fuel quality
judgments have been set some place close to the BIS (Bureau of Indian Standards) for gas and
diesel for the period 2000-2005 and past 2005 for the country (13,14). Given the extended usage
of diesel in our country, it becomes essential to reduce its Sulfur content, which for Bharat IV
has been decreased to 50 ppm. For gas, lead was killed in the entire country w.e.f. February 01.
2000. In India, the Petroleum Conservation and Research Association (PCRA), a free assessment
body under the Union help of petroleum and combustible gas, has denoted a notification of
cognizance with the Bureau of Energy Efficiency to encourage mileage rules under the Energy
Conservation Act, 2001. The eco-neighborliness standard is significant for a wide scope of
vehicles, including vehicles, trucks and transports. According to government projections, the
country could save to $36 billion expecting eco-agreeableness is improved by half by 2030 in all
areas.At this point, the automakers in India are mentioning an exceptional cut in GST rates from
28% to 10 percent for a limited time period, in a bid to help bargains and make pay after
Coronavirus episode has conveyed the economy to a stop. Focusing on region arranged plans;
the NITI Aayog said that charge assortment and commitment structure for industry should be
illustrated as one. The business should combine and stop working in storage facilities. From part
producers to merchants, all should think along in a comparative line and propose a likely plan,
which should be a common advantage for government similarly concerning entire climate.