It's hard to escape the influence of the auto industry in Chennai, a city in southern India known as the nation's Detroit. Schoolyards have billboards proclaiming they're "supported by" big carmakers such as Daimler, Renault, and Nissan Motor. Even the public toilets in a nearby slum are sponsored by the country's largest tiremaker.With a rising middle class and rapid urbanization, this should be boom times for India's automotive industry, the fourth largest in the world. Car density-measured by the number of passenger cars per 1,000 people-was only 27 last year, vs. 145 in China and 570 in Germany, according to Fitch Ratings. That leaves huge potential for growth. McKinsey & Co. projected in 2018 that India could overtake Japan as the No. 3 car market by 2021.Yet the mood in Chennai is one of gloom as an unprecedented slump grips the industry. Passenger car sales have contracted for nine straight months, plunging to 115,957 units in August, a 41% drop from the previous year-the biggest decline on record. Automakers are cutting investment and production; hundreds of dealerships have shut down. Nationwide, job losses in the sector, which employs more than 32 million people directly and indirectly, have climbed to more than 580,000 in the past 18 months, according to estimates from labor unions and auto dealers.
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