The retail sales of commercial vehicles are likely to witness a slight demand taper in the March quarter due to a high base effect and upcoming general elections, according to the Federation of Automobile Dealers Association (FADA). However, long-term fundamentals remain positive, with expectations of a post-election rebound as underlying industries resume tender processes, says FADA.

In January, the commercial vehicle retail sales witnessed a marginal increase of 0.11% YoY to 89,208 units as against 89,106 units in the same period last year with restricted financing options being a major challenge. "January 2024 presented a complex scenario for the CV segment, demonstrating limited YoY growth. On the one hand, increased infrastructure development, port activity and positive crop yields fuelled certain market segments. However, this momentum was hindered by extreme weather, tightened liquidity, high vehicle costs and more restricted financing," says Manish Raj Singhania, president, FADA.

PV sales hit record high 

Meanwhile, the passenger vehicle retail sales increased by 13.3% year-on-year to 3,93,250 units in January this year, thus recording a new all-time high. In contrast to this, the passenger vehicle retail sales in January last year stood at 3,47,086 units. "SUV demand, along with the introduction of new models, greater availability, effective marketing, consumer schemes and the auspicious wedding season, underpinned this strong performance," says Singhania.

However, a persistent concern lies in high inventory levels, which still hover in the 50-55 day range, thus posing a challenge for auto dealers, according to FADA.

"This calls for an immediate recalibration of production from OEMs to better align with actual market demand and avoid future oversupply issues. As adaptability is crucial in this dynamic industry, OEMs must balance innovation with strategic production planning to ensure sustained success and overall market stability," says Singhania.

Rural demand drives 2-wheeler sales

In the two-wheeler segment, the retail sales grew by 14.96% year-on-year to 14,58,849 units as against 12,68,990 units in the same period last year fuelled by continued strength in the rural market. According to FADA, the two-wheeler segment is poised to benefit from the government’s good crop production estimates and continued support for the rural economy. Notably, the average inventory levels for two-wheelers currently range from 10-15 days.

"Several positive trends in the 2W market signalled a robust start to the year. Improved vehicle availability, due to adjustments post-OBD 2 norm implementation, the introduction of new models and a shift towards premium options all contributed to increased demand. This, combined with a good harvest, a positive marriage season and effective follow-ups and offers, indicate a favourable trajectory for the 2W sector," says Singhania.

Meanwhile, the three-wheeler retail sales grew by 36.94% YoY in January this year to 97,675 units as against 71,325 units in the same period last year. "The 3W sector revealed a mixed landscape. While growth and optimism continue within the commercial 3W market, intensified competition from electric models underscores a significant market shift – now 55% electrified," says Singhania.

The retail sales of tractors grew by 21.16% YoY to 88,671 units as against 73,184 units in the same period last year.

"Tractor sales saw a positive uptick after a slowdown in previous months, likely driven by anticipation of a good Rabi crop output and favourable weather conditions for wheat cultivation," says the association.

Near-term challenges

FADA says that in the near term, persistent supply bottlenecks for specific high-demand models present a risk factor for consistent growth across segments, thus highlighting the need for original equipment manufacturers' (OEM) optimisation of production lines. Moreover, the upcoming elections might affect purchasing decisions across vehicle segments.

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