Economy

Automobile makers on tenterhooks

Roudra Bhattacharya | Updated on March 12, 2018 Published on July 15, 2012

A delayed monsoon is likely to have a direct impact on two-wheeler, utility vehicle and tractor sales.

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Overall economic conditions mattered more in driving vehicle sales than monsoon. In 2009-10, when overall rainfall was only 78% of normal level, sales of commercial vehicles, cars, motorcycles actually rebounded sharply.

Though cautious of the impact of a delayed and deficient monsoon, the auto industry is generally optimistic that sales will not take a hit this time around. This is because there are some early signs that rainfall will improve over the next few weeks. The general consensus is to adopt a “wait and watch” attitude and, if necessary, react with promotions at the last moment.

A delayed monsoon is likely to have a direct impact on two-wheeler, utility vehicle and tractor sales. Low farm output and a subsequent drop in transportation demand may then have an indirect hit on commercial vehicle (mostly truck, LCV) sales in the later months.

“If food prices and inflation rise on low agricultural output, disposable incomes in both the urban and rural areas will shrink. This will definitely impact vehicle purchase decisions, and the first to be hit will be two-wheelers,” an industry expert said. While the Society of Indian Automobile Manufacturers (SIAM) has maintained its growth outlook for two wheelers at 11-13 per cent for 2012-13, it has also warned of possible a negative impact of improper rainfall.

Passenger vehicle sales

Meanwhile, the low base of last year (lower output on Maruti’s labour troubles, Thailand floods) is expected to help the passenger vehicle market post a growth for the second half of this year. Growth in the car market is, however, more dependent on fuel prices and interest rates coming down.

Mr Pravin Shah, Chief Executive – Automotive Division at Mahindra & Mahindra, feels that the impact will mostly be on the market sentiments, and may have just a limited impact on real sales numbers.

“It’s still too early to say that monsoon may fail and our space of utility vehicles (UVs) has been doing well over the past few months. The good thing is that procurement prices have been raised by the Government,” he said.

However, higher procurement prices may not prove to be a relief for farmers as fertiliser prices have gone up. Interestingly, the industry body recently raised the growth projection for passenger vehicles sales by a percentage point to 11-13 per cent for 2012-13. This is largely on the back of a 29-31 per cent expected growth in UV demand - rural and small towns account for a major chunk of UV sales.

Mr S. Sandilya, President, SIAM and non-executive Chairman of Eicher Motors, said: “The delayed monsoon is a concern, since the current sentiments are of a slowdown. One will clearly know how it impacts sales after September.” “In 2009-10 when the monsoon was deficient, commercial vehicle sales were hit in some senses, though they still managed to post a growth,” Mr Sandilya said.

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Published on July 15, 2012
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