Inflation, El Niño may hit two-wheeler sales in rural India

Two-wheeler sales remain significantly below pre-pandemic levels, indicating that rural India is still bearing the burden of high inflationary costs, according to the Federation of Automobile Dealers Associations of India (FADA).

The two-wheeler category witnessed a growth of 12% year-on-year but was down by 9% from its pre-Covid levels, the auto dealers' lobby says. Rural India, which still has not performed, continues to remain under inflationary pressure, it says.

This comes at a time when US government agencies have warned of the possibility of El Niño's arrival later this year, which could lead to poor monsoons, hampering rural India's growth potential, warns FADA.

Total vehicle retail sales rose 14% year-on-year in March 2023, according to data released by FADA. Except for tractors, all categories saw double-digit growth, with two-wheelers, three-wheelers, passenger vehicles and commercial vehicles growing by 12%, 69%, 14%, and 10%, respectively. Tractor retail sales, however, grew 4%.

The passenger vehicle segment grew 14%. "Better supplies coupled with better sales, though at the upper end of the spectrum kept the meter ticking. This apart from increase in prices of OBD 2A vehicles coupled with multiple festivals in the month kept the sales healthy though inquiry levels have now started decreasing," says FADA.

The three-wheeler segment achieved record-high retail sales by growing 69% and surpassing the previous high figures of March 2020, the auto body says. The commercial vehicle category clocked robust growth of 10%.

Fiscal 2022-23 was the first full year without any impact of Covid after a gap of two years, says FADA president Manish Raj Singhania. "Overall retail sales during the year experienced double-digit growth of 21%. Similarly, all categories except for tractors saw double-digit growth, with 2-wheelers, 3-wheelers, passenger vehicles, and commercial vehicles growing by 19%, 84%, 23%, and 33%, respectively. Tractors, however, only grew by 8%," says Singhania.

Two-wheeler sales in FY23 fell to a seven-year low, says FADA. EV penetration in this category during the year was at 4.5%.

Retail sales of passenger vehicles reached a record high of 3.6 million vehicles, growing 23%. The previous high was in FY19 when retail sales were 3.2 million vehicles. "The segment experienced numerous new launches and better product availability due to the easing of the semiconductor shortage during the year. The demand for higher-end variants helped sustain sales," says FADA. However, the entry-level variant remains under pressure as customers in this category are still affected by high inflation, FADA adds.

On near-term outlook, FADA says, FY24 is expected to see tapered growth in the low single digits due to a high base, inflationary pressures, routine price hikes, and regulatory changes. "The untimely rains and hailstorms in north and central India have destroyed key rabi crops and delayed harvesting, which will have a negative impact on rural sales," cautions FADA.