FY23: Race for Record Auto Sales

MARUTI SUZUKI India Ltd. (MSIL) chairman R.C. Bhargava made an upbeat observation while addressing media during announcement of 2nd quarter results. “The Indian automobile industry has reached a stage, at least this year, where it will surpass the figures of FY19, which was the year when it recorded its highest numbers.” The industry had reported sales of 33,77,436 passenger vehicles (PVs) in FY19. A few days later, Federation of Automotive Dealers Association (FADA) said the PV segment saw its best-ever festive season. Sales surpassed the previous best figure of 4,47,000 units, achieved in 2020, by 2% to 4,56,000 units. Wholesale dispatches in first half of FY23 stood at 19,36,740 units, data from Society of Indian Automobile Manufacturers shows.

These figures are surprising for an industry lurching from crisis to crisis after FY19. In FY20, the pre-pandemic year, demand sagged due to economic slowdown. This was followed by shift from BS-IV to far more stringent BS-VI norms right in the middle of the Covid-19 lockdown. The pandemic brought further economic uncertainty along with shortage of semiconductors due to supply-chain disruptions.

Revenge Buying

Retail sales also show market resilience to price hikes triggered by rising input costs after the Russia-Ukraine conflict. “One of the biggest factors behind record sales is consumer behaviour. People are on a spending spree. They have come out in droves, especially in the festive season, after two years of muted demand,” says Manish Raj Singhania, president, FADA. Singhania’s view is echoed by Hardeep Singh Brar, vice president and head of sales and marketing, Kia India. “There is a perception among people after the pandemic that you only live once. People are splurging more on cars, they are buying bigger phones. It is like revenge buying,” he says.

Singhania says the pandemic underlined the importance of personal mobility. “In FY19, there were concerns that younger generations are becoming averse to owning cars and relying on ride-hailing services such as Ola and Uber. The pandemic has reversed this trend,” he says. Even Gen-X and Gen-Z wanted a personal car during pandemic years as it is safer then shared mobility. Singhania says even public transport in India is inadequate. On the other hand, road infrastructure is getting better with building of several access-controlled expressways connecting major cities. “With quality roads between major cities, for instance, Delhi-Lucknow, Mumbai-Pune, people are no longer using public transport,” says Rajesh Jejurikar, sector head, auto and farm sectors, Mahindra & Mahindra.

One more reason PV sales did not dip in spite of higher prices and interest rates is perceptible shift towards pricier utility vehicles, which includes SUVs and MPVs. SIAM says utility vehicle sales touched an all-time high of 9,82,456 in first half of FY23. Passenger car (primarily hatchbacks and sedans) segment saw sales of 8,79,954 units. “Somebody buying a ₹10-20 lakh car will be unfazed by EMIs going up slightly,” says Singhania. According to Jejurikar, over the last decade, people have recognised the benefits of owning an SUV. “In India, a lot of car buyers want an SUV for more space or seats, as they have a culture of joint families,” he says.

Lost Potential

Supply-chain constraints in PV segment, especially shortage of semiconductors, even after Covid-19 mean interminable waiting periods. Mahindra made an unenviable headline recently when waiting periods for XUV700, Scorpio and Thar became 20 months. “If you get 1,00,000 bookings for a model that you can build only 6,000 units of every month, the waiting period inevitably becomes substantial,” says Jejurikar. MSIL has an order book of more than 4,00,00 units, estimated to be one-third its annual production capacity. “Had these issues not existed, retail sales would have been a lot more. Every OEM has a model which is heavily booked. If these models were available (in sufficient numbers), sales would have been more than currently witnessed. The OEMs need to reconfigure their supply chain to reduce the waiting period,” says Singhania.

The long waiting periods also show that most car buyers want a model of their choice. “In India, car-buying can be classified in two parts. One is need-based. The other is choice-based, where you want to buy a car of your choice, probably your second or third car, and can wait,” says Singhania. This implies that a big chunk of demand is coming from additional purchases or upgrades. “The entry-level segment, which once used to attract first-time buyers, has been under pressure for a while now,” says Singhania. R.C. Bhargava, on the other hand, says that while the industry will cross an all-time high this year, MSIL will finish the financial year roughly at the same level as FY19. “This has happened because the small-car segment has shrunk this year. We expect this trend to continue next year,” he says.

While the PV industry will end this year at all-time high, there are doubts whether this trend will continue next year, which will see a slew of regulatory changes, including on-board diagnostic (OBD-2) mandates, BS-VI Stage-II norms, along with six airbags in all PVs. “It is yet to be seen how these changes will affect the market. One can say that the utility vehicle segment will be resilient to price increases. OBD-2 may also not be a huge ask given that utility vehicles already have a lot of sensors,” says Singhania.

But the real picture will emerge only after the changes are implemented on the ground.