Logistics

Auto sales continue to skid as industry faces headwinds

Mirza Mohammed Ali Khan New Delhi | Updated on June 11, 2019 Published on June 11, 2019

Industry seeks govt support to stimulate growth

The downward spiral in automobile sales continued in May 2019 as slack retail offtake forced manufacturers to cut production in order to adjust to market demand.

Data from the Society of Indian Automobile Manufacturers (SIAM) released on Tuesday revealed a decrease of 8.62 per cent in total domestic sales compared to figures from May 2018.

The slump was recorded across almost all automobile types, with passenger car sales declining by a significant 26.03 per cent. In May 2019, 1,47,546 passenger cars were sold. The total passenger vehicle sales, including vans and utility vehicles, declined by 20.55 per cent, with a total of 2,39,347 units sold.

Even two-wheeler sales fell, as the world’s largest two-wheeler market faced headwinds in the form of increased insurance rates and uncertainty ahead of the BS-VI regulations that will kick-in next year.

Total two-wheelers sales declined by 6.73 per cent compared to May last year, as scooter sales fell by 7.87 per cent and motorcycle sales declined by 4.89 per cent.

‘Unprecedented’ decline

SIAM termed this continuous decline unprecedented. “We had anticipated that before the Budget, the industry will not be able to turn around. But if you look at the severity of the drop, that is something which is bothering us,” Sugato Sen, Deputy Director General, SIAM, told BusinessLine.

Sen further added that apart from one month seeing an up-tick in the past 11 months, sales have been on a continuous decline.

While analysts and industry experts have attributed a variety of reasons for the slump, including the General Elections, they are of the opinion that these factors need to be studied in a much more detailed manner. “We used to look forward to elections — for sale of utility vehicles, two-wheelers — this time, all categories of vehicles are down,” Sen elaborated. Other industry experts said that a possible reason behind reduced automobile sales could be improving public transport facilities, such as better metro connectivity in some cities.

“Dwindling sales in passenger cars show no signs of rebounding yet due to various factors such as drying up of financing resources with the NBFC troubles, election-related impasse, high base number and BS-VI expectations in a couple of quarters. Many OEMs have plans afoot in cutting back production to reduce the inventory pile-up with dealers. The segment is hoping for the Budget to throw some encouraging news,” Sridhar V, Partner, Grant Thornton India, said.

Manufacturers such as Mahindra & Mahindra and Maruti Suzuki have cut production.

Pinning hopes on Budget

 

SIAM and the auto-makers are now looking at the Budget with hope. “This is something which needs serious intervention from the government so that the market starts behaving in a positive manner,” said Sen. “We also had requested the Ministry of Heavy Industries, which is our parent ministry, to take it up with the Ministry of Finance and we hope they support us,” he added.

Budget solutions in the form of tax relief is an important aspect. “We have requested that the highest rate of 28 per cent (GST) should not be levied for all categories of auto industry. In fact, the entire 28 per cent category should be removed and should come down to 18 per cent,” he added. Sen was also of the opinion that cess needs to be moderated.

In the medium-term, the BS-VI regime beginning from April 2020 could have an effect, as vehicle costs are set to increase. “With BS-VI, diesel car costs will go up significantly. Petrol car costs will not go up so significantly,” Sen said.

With regard to two-wheeler sales, Sen was optimistic as he expected people to continue buying them. However, he said the sector may not see a straight-line growth but some ups and downs, thanks to cost factors.

Published on June 11, 2019
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