India’s auto sector has bulked up on inventory in anticipation of a good festive season. Passenger vehicle and two-wheeler wholesale dispatches continue to drive the auto sector’s growth. While passenger vehicles sales grew 26% in September, two-wheeler sales grew 12 percent compared to last year.
The auto sector’s production was also up 11.7 percent. The Federation of Automobile Dealers had recently said that inventory for two-wheelers and passenger vehicles was at record highs and poor sentiment in the festival season could severely impact the financial health of dealers.
Do these numbers indicate that the auto sector has recovered growth momentum? India’s auto industry veterans are not so sure.
“It is difficult to forecast the demand outlook beyond December. We are preparing to increase volumes and sales but we will have to wait to see what happens after the festive season. Sales in Q4 will indicate if demand is sustainable”, said Kenichi Ayukawa, Managing Director of Maruti Suzuki and President, Society of Indian Automobile Manufacturers.
According to rating agency ICRA, passenger vehicle sales could decline by 22-25 percent in FY21. The auto sector’s fortunes are likely to be affected by weak GDP, poor sentiment, and high commodity prices, said the agency.
“There is an increased risk aversion in retail as well as wholesale financing, which is a deterrent. The rural market will be the key driver of volume in FY2021 which will benefit entry-level cars and UV. Buyers may opt for 2W or used cars to avoid public transport” said Ashish Modani, Vice President, ICRA.
Car and two-wheeler sales are indeed a bright spot, but signs of stress are very much visible. Three-wheeler sales were down by a sharp 72 percent in September. Commercial vehicle sales were down 20 percent in the July-September period, a sixth consecutive quarter of de-growth.
Exports which were down 63 percent in Q1, improved sequentially but were down 21 percent compared to last year, indicating weak demand in global markets. Another reason why the auto sector is not cheering yet is that sales volumes are still low compared to 2016 and 2017 numbers.
“In the July-September quarter, passenger vehicles grew by 17.02 percent, two-wheelers grew by 0.17 percent, three-wheelers saw a de-growth of -74.63 percent and sales of commercial vehicles declined by -20.13 percent compared to the same quarter in 2019”, said Rajesh Menon, Director General of the Society of Indian Automobile Manufacturers.
With an eye on Navratri, Dussehra, and Diwali sales, all car and two-wheeler manufacturers are launching new products, discounts on service and entry level vehicles.
First Published: IST