India’s automotive industry is known as an economic bellwether. So what’s it telling us: are consumption patterns changing and why? Passenger vehicle sales accelerated 27 per cent to a record 3.7 million in the 2022-23 financial year. While some pent-up Covid demand was driving those figures, there seemed to be a new level of affluence among some buyers. But two-wheeler sales have fallen to seven-year lows, reflecting rural distress.
Let’s look at the positive numbers first. Passenger vehicle sales easily eclipsed the previous 3.7-million peak in 2018-19, the final pre-pandemic year analysts use as a proxy for “normal.” That number was achieved even though the global semiconductor shortage is still weighing down the industry. “Overall demand is good despite semi-conductor supply constraints,” says Maruti marketing and sales executive director Shashank Srivastava.
But while last year was solid for passenger vehicle sales, analysts say there’s no way they can keep growing at this clip, partly because the base is just too big. For example, ratings agency ICRA is looking for much more modest 6-9 per cent growth in the passenger-vehicle segment this year.
Another interesting shift is at least some Indians appear to have much deeper pockets. India was once the world’s leading market for small, inexpensive cars and cost considerations ruled above all else. But this year, we’ve seen signs Indians have more money to spend with status-conscious buyers splurging on more upmarket vehicles, especially SUVs.
In fact, the market has altered so much Maruti Suzuki says 40 per cent of its sales are now in the ₹10 lakh and above category. That’s a massive shift from earlier years. In 2018-19, just 15 per cent of Maruti’s sales were in the above ₹10-lakh category.
Shashank points out customers have had to pay more because rising commodity costs have pushed up price tags for all vehicles.
Simultaneously, registration and road taxes have also climbed. But Indians are still purchasing those higher-end cars. And buyers are keener than ever to buy the costlier, feature-packed models, which must mean pay cheques are fatter. Also, “customer tastes have changed. Many want more expensive utility vehicles” rather than sedans, says a senior auto industry analyst. He notes SUVs accounted for nearly half of all passenger vehicle sales last year, a distinct shift from earlier years when SUVs made up just 20-25 per cent of the market.
Now, move on to the lower end of the market. The two-wheeler industry, the world’s biggest, is still having great difficulty revving up. In 2022-23, domestic sales were 15.8 million, according to the Society of Indian Automobile Manufacturers, a massive drop from the 21.1 million sold in 2018-19.
Rural market
One key factor behind the drop is rural India has been slower to recover from Covid-19. “The rural economy is quite challenging for sales,” says the auto industry analyst. Similarly, three-wheeler sales are also down sharply from peak 2018-19 levels, while tractor sales grew by just eight per cent.
Some poorer buyers have been priced out of the market by significant increases in the costs of lower-end vehicles due to inflation, stricter regulatory norms, rising commodity prices and pandemic disruptions. Two-wheeler prices shot up by 10-15 per cent after the implementation of BS6 norms while insurance premiums have climbed too.
The “purchasing power of the consumers at the bottom end of the pyramid has been eroded to an extent,” says ICRA. Separately, a weak monsoon in wake of the expected arrival of weather-disrupting El Nino could spell more hard times for the rural market with unseasonal rains hitting key rabi crops and delaying harvesting.
While EV passenger vehicles sales accounted for just over one per cent of units sold in India, according to Bloomberg, the two-wheeler segment is where electric vehicles could quickly make a dent and manufacturers are working out how to adjust to this challenge.
But in other positive news for the automotive sector, commercial vehicles sales which had been in the dumps for the last few years are picking up. Just before the last election, the government altered the axle-load norms which meant commercial vehicles could ferry higher loads. That obviously decreased demand but CV sales now are recovering.
Heavy infrastructure spending which is expected to continue with another election looming should mean more healthy sales ahead.
This financial year has got off to a good start with vehicle manufacturers reporting double-digit April growth. So far, the Indian economy looks resilient in the face of global headwinds. Nothing’s guaranteed though for the world’s fourth-largest automotive sector in these uncertain times.