Quick Take

Is the worst over for the auto sector?

| Updated on November 20, 2019

Festival sales suggest a feeble turnaround, but these are still early days

The auto sector is at an inflexion point. Apart from being buffeted by the economic slowdown, it is adjusting its production lines to become BS-VI compliant by April next year. It is against this backdrop that the rising vehicle registrations in October need to be assessed. To many, the numbers suggest a turnaround, with overall vehicle registrations up 4 per cent year-on-year, and passenger vehicles showing a jump of 11 per cent. Two-wheelers, which account for over three-fourths of the number of automobile units produced, showed a modest increase of 4 per cent. Commercial vehicles registered in the month dropped sharply by 23 per cent, not only mirroring the slowdown in industry but also to a lesser extent, the relaxation of axle-load norms and the possible effect of the GST on efficiency in vehicle movement.

The registration figures for cars, which account for about 13 per cent of the automobile units produced, have increased not only because of the festive season demand, but also on account of the deep discounts offered this time in an effort to offload BS-IV vehicles which cannot be produced after April 2020. Discounts are the norm in the first quarter of the next calendar year, as customers prefer to buy an entirely new vehicle over one that has the previous year’s tag on it. But whether the discounts in the first three months of 2020 will be more attractive than usual depends on the number of unsold BS-IV vehicles. According to SIAM data, the wholesale slump was deeper than the retail slump this fiscal; in other words, the manufacturers were overcompensating for the slump in demand, possibly also to wipe out stocks and prepare for the transition to BS VI. Market leader Maruti Suzuki has said that it has liquidated its BS-IV inventory, an indication perhaps that the discounts in coming months may not be great after all. If consumer demand remains unusually tepid, the selling strategies may change.

There are indications that the rate cuts over this calendar year are also beginning to take effect in terms of the cost of retail lending. But unless the macro environment improves, these moves are unlikely to have a far-reaching impact.

Published on November 20, 2019

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