Imminent Lok Sabha polls are not just spooking political rivals, they seem to have put a spanner in the works for automobile companies too. Mowtown slowed down for almost the entire second half of FY19, but the slowdown accelerated in the fourth quarter as polls approached. The data from the Society of Indian Automobile Manufacturers (SIAM) shows dispatches of passenger vehicles (cars, SUVs and vans) grew 7 percent in the first half of FY19 but declined by a percent in the second half, with a dip of 2 percent in the last quarter.
Passenger car dispatches were growing at 6 percent in the first six months but fell by 3 percent in the second half and by 5 percent in the last quarter of FY19. Two-wheeler dispatches were down 9 percent in the fourth quarter from a growth of 10 percent in the first six months of the fiscal. Within two-wheelers, scooter dispatches fell by a steep 16 percent in the last quarter against a 5 percent growth in the first six months.
Automobile industry veterans say a slowdown in the dispatches of passenger vehicles, in particular, just before the general elections, was noticed in two previous instances too — in May 2009 and May 14 — and that political uncertainty usually pushes prospective buyers to the sidelines. The SIAM data shows PV sales were flat in May 2009 and fell by 6 percent in May 2014 but then picked up after the election results were in, in both years. PV sales grew by a whopping 26 percent in FY10 and by 4 percent in FY15, buoyed by policy certainty.
Not just political headwinds, a slowing economy has also made matters worse for automobile sales in the second half of FY19 with GDP growth down to 6.5 percent (estimated) versus 7.5 percent in HIFY19.
Now, at least until a new government is in place and there is some policy certainty, vehicle sales in India are likely to remain subdued. But even after elections are over, the prognosis for automobile sales in India is not too healthy. As per the forecast by SIAM for 2019-20, passenger vehicles (cars, SUVs and vans together) will grow anywhere between 3-5 percent, commercial vehicles (CVs) by 10-12 percent, three wheelers by 7-9 percent and two wheelers by 5-7 percent in the current fiscal. It is apparent then that barring CVs, the days of healthy double digit growth for most other vehicle categories are now behind us, elections or no elections.
Besides elections, other factors which are seen contributing to slowing sales of cars, trucks and motorcycles include the rising cost of ownership, sub-optimal monsoon rains affecting rural buying sentiment and the increasing share of ride-hailing apps in urban mobility. Almost 40 percent of Maruti’s sales come from rural markets; every second two wheeler is sold in rural markets. Urban markets are already facing issues of congestion, ride-sharing options and with rural markets also slowing down, low single digit growth in automobile sales may be the new normal.
As per SIAM data, production at India’s largest car maker Maruti Suzuki India as well as at two-wheeler major Hero MotoCorp dropped by almost a fifth each in March. Maruti accounts for almost every second car sold in India whereas Hero is the world’s largest two-wheeler maker. A production cut of nearly 20 percent points to unsold inventories with the dealers and the reluctance of buyers for new vehicle purchases. Also, it is interesting to see where all the cuts have been applied.
As per data collated by analysts at Kotak Institutional Equities, sales of Maruti’s smallest cars – Maruti 800, Alto, A-Star and WagonR – contracted by more than half between March 2018 and March 2019, from 37,511 units to 16,826 units. For several decades, Maruti800 and Alto were seen as the bread and butter models of Maruti. Hero MotorCorp saw monthly sales dip by more than 2.5 lakh units this March versus the same month last year.
As is evident from such steep production cuts, dispatches of almost all categories of vehicles – cars and SUVs, scooters and bikes, heavy trucks and trailers – also fell last month. SIAM data show domestic dispatches of all vehicles together fell by 14.21 percent last month, with two wheeler dispatches registering the steepest fall and commercial vehicles (CVs) remaining flat at 0.28 percent growth. Almost 7 percent fewer cars were dispatched to dealers, scooter dispatches fell by a fourth while those of motorcycles were down by over 14 percent in March. Even mopeds fell by almost 10 percent. SIAM tracks vehicle dispatches from factories to dealers; a commensurate slowdown in onward retail is also being noticed.
The decline in passenger cars was far more than the overall PV market, at almost 7 percent to 177,949 units. The decline in motorcycle sales was also steep, to 982,385 units from 11,45,879 units a year earlier.SIAM president Rajan Wadhera says the government can help the automobile industry by reducing the GST rate on cars and two-wheelers from 28 percent to 18 percent. Anyway, with the deadline for BS VI fuel looming, the industry hopes for a robust purchase of discounted BS IV vehicles this fiscal which may help boost overall sales numbers.