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Bumpy ride: Car sales in slow lane for 12th straight month

FE Bureau
Car sales, consumer interest, passenger vehicles, carmakers, Axis Capital, Maruti Suzuki, Tata Motors, Mahindra & Mahindra

Impacted by shutdowns at some plants and little consumer interest, wholesale despatches of passenger vehicles (PVs) were down by over 15% year-on-year (y-o-y) in June, the 12th consecutive month of subdued numbers. Despite the shutdowns, however, inventory stayed at levels that were higher than the normal 20-30 days with companies struggling to stimulate demand.

Analysts said weak retail demand and inventory correction affected carmakers' wholesale despatches to dealers.

Besides, the increase in vehicle prices due to regulatory changes and higher financing costs are expected to impact car sales for a few more months till the festive season. "It's a grim volume scenario at present partly due to a weak model launch phase," analysts at Axis Capital wrote.

While Maruti Suzuki had its annual maintenance shutdown of seven days in June, others, including Tata Motors and Mahindra & Mahindra (M&M), left their plants shut for 3-9 days to reduce unsold inventory piled up from the 2018 festive season, when demand was weaker than expected due to a hike in insurance premiums and costlier finance.

Maruti's domestic volumes in June fell 15.3% y-o-y, while Hyundai's volumes were down 7.3%. M&M was the only manufacturer to buck the trend by registering a 4% y-o-y growth in June, on the back of new launches like XUV300. Tata Motors posted a sharp 27% y-o-y dip in PV wholesales. Same goes for the two-wheeler demand, which remained lacklustre for the 8th consecutive month in June.

Rakesh Sharma, executive director, Bajaj Auto, which performed relatively better, said he didn’t see any green shoots going ahead. "We have assumed that it will be a muted growth for the industry. The inventory levels are currently at 6-8 weeks," Sharma said. Bajaj Auto's domestic two-wheeler volumes fell 1% y-o-y in June.

Maruti Suzuki chairman RC Bhargava earlier said loans have become more expensive since the second half of previous fiscal, which might continue impacting consumers for the next few months. "With the RBI easing interest rates, I hope the banks will pass on the benefits to customers in the next few months, which may help in inventory easing out," Bhargava had told FE.

N Raja, deputy MD at Toyota Kirloskar Motor, said slowdown in domestic sales had been a result of several factors. "The prevailing economic uncertainty, uncertainty on monsoons, high interest costs, tight liquidity and also the underlying apprehensions surrounding BS VI introduction in few months have steered the slowdown," Raja said.

Among two-wheelers, Hero MotoCorp's sales dropped 12% y-o-y, while TVS Motor's domestic sales dipped 8%. Royal Enfield volumes declined 24%. Demand for two-wheelers was impacted by a rise in insurance premium in September 2018 and subsequent price hikes effected by companies on April 1, as they had to add several features to the vehicles to comply with the new safety norms.

Wholesales of commercial vehicles (CVs) too fell nearly 12% y-o-y in June, with the management of major companies attributing the slowdown in demand to a halt in several infrastructure projects and the revised axle load norms. Ashok Leyland's domestic sales fell 14% y-o-y, while Tata Motors and M&M posted a fall of 7% and 15% y-o-y, respectively.

"Both M&HCV and the SCV segments have been hit by poor consumer sentiment, falling freight rates and difficulty of funding by NBFCs," said Girish Wagh, president, CV business at Tata Motors.

After around seven months of growth in FY19, CV volumes started dwindling since November 2018. The government last year hiked the loading limit for CVs, as a result of which fleet operators got more bandwidth to load goods and new purchases are getting postponed.

Analysts at Nomura said relaxation in load axle norms continued to impact demand despite healthy traction in the tipper segment.