Is the automobile industry, particularly the heavy commercial vehicle (HCV) segment, headed for a cyclical downturn? The first quarter of this fiscal was none too good for commercial vehicle manufacturers, it was “so-so” for passenger car players and bad for two/three-wheeler companies. Statistics put out by the Society of Indian Automobile Manufacturers (SIAM) for the first two months of this fiscal show a 5 per cent fall in overall sales of automobiles. But t hat shrouds some insidious trends in the different segments and sub-segments.

For instance, two/three-wheeler sales growth is well into negative territory, while HCVs are just getting into that. Within HCVs, offtake of trucks is dropping rather sharply for comfort while the rise in sales of buses is keeping overall sales volumes of HCVs afloat.

The light commercial vehicle (LCV) market, which was enjoying a great run on the back of the hugely popular sub-1 tonne goods carrier, Tata Ace, received a setback in June when Tata Motors reported a drop of under 1 per cent in sales of the model. The extent of drop may appear inconsequential but is significant because this segment has been delivering steady growth of 10-15 per cent in the last two years. In the passenger car segment, there is again an interesting dichotomy with some models continuing to do well and the others seeing a fall in sales. For instance, models such as Suzuki’s new SX4 and the Swift or the Logan from Mahindra & Mahindra were driven off showrooms as soon as they reached there but the others, such as the Indica and the Santro, were relatively sluggish in their movement.

Even as these trends are a bit confusing, one thing that is clear as crystal is the existence of a negative under-current in the automobile industry. The question though is whether it will grow and spread across the industry or will it lose momentum soon.

The sharp rise in interest rates is seen as the villain of the piece and automobile companies say that higher monthly instalments is putting off prospective buyers. But, then, how does one explain the higher sales of specific passenger car models? And then again, in the case of two-wheelers, the increase in monthly instalments cannot be very high in absolute terms given that the unit value of two-wheelers in the mass segment is around Rs 40,000 only. So why are two-wheeler buyers staying away?

More intriguing are the trends in the commercial vehicle industry.

Though sales of goods carriers have been falling in the last four months, companies say that they still don’t see the red signal of a recession in the market. For instance, freight rates and cargo movement, where you can spot the first hint of trouble, are still good. Operators are certainly not complaining of lack of cargo to move or of empty return trips.

The other major signal, which is default in loan repayment by truck operators to finance companies, is also absent. So, why are sales falling?

One explanation being offered is that sentiment has been affected by the sharp spike in rates in the last few months. Buyers, including fleet operators, are merely postponing purchases in expectation of a drop in interest rates. They will return to the market once rates stabilise or, optimistically speaking, fall.

This hypothesis will be put to test by the end of the current quarter when the busy season for the economy begins with a string of festivals. The good news is that interest rates appear to be stabilising. Housing finance companies have started offering “discounts” of up to 50 basis points on home loans even as banks have quietly started to mark down rates on interest they pay for bulk deposits. So is this the start of a trend reversal in rates?

Auto manufacturers must be fervently hoping it is, for interest rates are the only indicator signalling red even as all the other factors that support the growth of vehicle sales, ranging from disposable incomes to goods movement, are showing positive signals.

The current quarter and the next will be critical for the industry and could well set the trend for its medium-term prospects.

A return to positive indicators will be in sync with the overall economic buoyancy but a continuation of the current trends could well signal the onset of a cyclical downturn in the automobile industry.

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