Passenger vehicle sales witness sharpest fall in 18 years; industry seeks govt support to stimulate growth

Carmakers including Maruti Suzuki, Tata Motors, Mahindra & Mahindra (M&M) had cut production during April-May between 4 to 10 days. The idea was to reduce unsold inventory piled up from the previous years’ festive months, when demand was said to be weaker-than-expected due to a hike in insurance premiums and costlier finance.

Analysts said volumes will likely be subdued due to selective financing by NBFCs, increase in vehicle prices on account of BS-VI norms and weaker consumer sentiment.

Passenger vehicle sales plummeted 20.55 per cent year-on-year (YoY) in May, the sharpest monthly fall seen in nearly 18 years, as manufacturers trimmed production owing to poor demand and higher inventory piled up with dealers from the previous months. The last time PV sales dipped to this extent was in September 2001 (21.91 per cent YoY), according to Society of Indian Automobile Manufacturers (SIAM) data.

Carmakers including Maruti Suzuki, Tata Motors, Mahindra & Mahindra (M&M) had cut production during April-May between 4 to 10 days. The idea was to reduce unsold inventory piled up from the previous years’ festive months, when demand was said to be weaker-than-expected due to a hike in insurance premiums and costlier finance.

Analysts said volumes will likely be subdued due to selective financing by NBFCs, increase in vehicle prices on account of BS-VI norms and weaker consumer sentiment. “FY20 could be a challenging year for the sector due to transition to BS-VI norms from April 1, 2020,” analysts at Kotak Institutional Equities noted.

Passenger vehicle sales witness sharpest fall in 18 years; industry seeks govt support to stimulate growth

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This was the 11th consecutive month when despatches remain subdued. SIAM director-general Vishnu Mathur said numbers are down due to inventory correction by automakers. “We have not witnessed such slowdown in the last 15 years,” Mathur said.

According to the data, 16 out of 17 passenger vehicle makers reported a decline in domestic sales, with the top five car makers including Maruti Suzuki and Hyundai dragging down the numbers significantly in May.

SIAM deputy director-general Sugato Sen said the fall is not unexpected as consumer sentiments are still low due to high prices. “While retail sales are better than the wholesale numbers, inventory correction has led to dip in despatches,” Sen said.

According to a PTI report, terming the situation as “unprecedented”, Sen said the industry body has asked the government to reduce goods and services tax (GST) on all categories of vehicles from 28 per cent to 18 per cent.

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“The government should also come up with a vehicle scrappage policy. It would help create market for new vehicles. Also we are seeking from government to restore incentives given on research and development in the form of weighted tax deduction to previous level (200 per cent),” he added. Two-wheeler demand remained lacklustre for the seventh consecutive month in May, falling 6.73 per cent YoY, dragged down by steep decline reported by companies including Hero MotoCorp and Honda Motorcycle. Demand was impacted by a hike in insurance premium in September 2018 and subsequent price hikes taken by companies on April 1 on account of new safety norms. Manufacturers increased prices in the range of Rs 500-7,000 as they rolled out products with combined braking system (CBS) and anti-lock braking system (ABS) feature, mandatory for vehicles sold from April 1.

Analysts said high inventory with dealers led to weakness in wholesales volumes. Besides, price hikes due to new safety norms from April 1 weakened demand. “We expect the industry to remain weak in the near-term on account of high and rising cost pressure by price hike due to safety norms,” analysts at Nomura wrote.

Sales of commercial vehicles (CVs) too fell 10 per cent YoY in May, with the management of major companies attributing the slowdown in demand to the general elections in May and halt in several infrastructure projects. “The M&HCV sales has taken the maximum hit in the domestic market, essentially due to higher capacity post increased axle load norms,” said Girish Wagh, president, CV business, Tata Motors. FE & PTI