A tough ride for the passenger-vehicle segment

As 2018 draws to a close, car dealers across the country are busy doling out significantly higher discounts and other sops to woo buyers. While year-end discount has become a norm in the market to drive volumes, the story this time is different.

The passenger vehicle (PV) industry is battling a high level of inventory on the back of sluggish retails.

In the light of the tepid sales during the festival season, inventory in the PV segment remained high (at least for more than a month). Hence, companies have been offering higher sops to flush out the inventory before December 31.

“All these five months up till November our sales have been flat. The growth has been little over 8 per cent till now even as the growth in Q1 was an outstanding 25 per cent. It fell flat after that not only in the wholesale sector but also in retail,” according to RC Bhargava, Chairman of the country’s largest car maker Maruti Suzuki.

It has been a tough ride for the passenger vehicle industry through 2018. While the first half brought a lot of cheer, the second half proved to be a damp squib due to several challenges.

In 2017, the passenger vehicle and two-wheeler segments achieved growth of 8 per cent each at about 3.2 million units and 19.2 million units respectively.

But, 2018 is likely to see passenger vehicle segment posting growth in low single digits, while two-wheelers and CVs may end on a high note with double-digit growth.

During January-November 2018, passenger vehicle sales stood at about 3.15 million units when compared with 2.99 million units in the same period the previous year, while two-wheeler volumes were up 14 per cent at 19.56 million units, according to the data of Society of Indian Automobile Manufacturers.

There were multiple disruptions — the floods in Kerala, a spike in fuel prices, higher insurance cost and interest rate, poor festival sentiment and liquidity issues — that pulled down sales in one month or the other.

However, commercial vehicle and two-wheeler segments were able to maintain growth for most part of the year.

The calendar year started off on a positive note unlike 2017 when the year commenced with the effects of demonetisation announced in November 2016.

The first quarter of 2018 recorded strong growth despite the high base of a year-ago quarter on account of the BS-IV related pre-buying, particularly in the two/three-wheeler segment and the commercial vehicle segment.

The June quarter also proved to be a strong quarter with all segments posting double-digit growth.

“The M&HCV segment benefited from higher budgetary allocation towards infrastructure and rural sectors, potential implementation of vehicle scrappage programme and stricter implementation of regulatory norms. Resumption of mining activities in select States also spurred demand for tippers,” said Girish Wagh, President - Commercial Vehicle Business Unit, Tata Motors.

After bullish sentiments, the year started to turn bearish after July with disruptions by way of floods in Kerala, a major market for PVs, increasing fuel prices and a spike in insurance cost all of which impacted the demand.

Festival dampener

The festival season also proved to be dampener as the PV industry witnessed muted demand during the Navratri/Dusshera season as higher fuel prices and increased insurance premium costs created negative sentiments. Consequently, high inventory levels have been a big concern in the past 2-3 months.

However, there is some positive news for the PV industry to reverse the trend in the coming months.

While insurance cost-related issues are behind and settled, fuel price has dropped to the old level and is expected to fall further in the near term. This will augur well for the industry.

Given past experience, the industry is hopeful of good growth in the coming quarters as PV sales generally slow down in the pre-election year and then go up significantly in the election year.

However, 2019 will also be the year of preparation for BS-VI, which will kick in on April 1, 2020, and hence it will again be a tough walk for the industry to balance growth and BS-VI readiness.

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