The domestic passenger car market is facing headwinds as sales showed no signs of revival in March—the fifth month of falling sales in a row. The Society of Indian Automobile Manufacturers (SIAM) attributes the lean stretch to weak market sentiments in the run-up to the general election in the country which begins on April 11.
According to the latest figures from the SIAM released on Monday, sales of passenger cars—the largest segment by volumes—dropped 6.87% to 177,949 units in March this year from 191,082 units in the same period last year. The passenger vehicle segment—including cars, utility vehicles, and vans—fell 2.96% to 291,806 units last month from 300,722 in March last year.
SIAM said pre-election year is a time of low growth for passenger vehicles. In its fourth quarter and annual review of the Indian automobile industry for FY19, the body said growth in pre-election year FY14 fell 6% and in the succeeding election year bounced back to 4%. SIAM said growth in FY19 stands at 3%; it will increase to 5% in FY20 similarly.
“This should continue till the time we have elections or first half,” said Gaurav Vangaal, country lead, light vehicle production forecasting, IHS Markit. He said the NBFC crisis which triggered a liquidity crunch, and an increase in insurance prices were among the major reasons for FY19 being a lean year. However, a spike in the consumer confidence index is a sign of recovery, he said. Also, a cumulative cut of 50 basis points (bps) in the repo rate by the central bank could put things on the mend for the industry.
“This is expected to support domestic sales in coming quarters, but poor monsoon can bring back jitters to the auto industry,” said Vangaal.
Two-wheelers, the second largest segment by volumes, also took a massive hit of 17.31% to 1,440,663 units from 1,742,307 in the year-ago period. Growing 0.28%, commercial vehicles including light, and medium, and heavy vehicles, were the only segment to show some sign of revival.
Total production also fell 18.45% to 2,180,143 units this year from 2,673,337 a year ago. However, the industry continues to grow in exports. The industry exported 378,914 units in March this year as compared to 364,199 in March last year, registering a growth of 4.04%.
SIAM said that some of the key growth enablers for the auto industry will be pre-buy of BS-IV vehicles in FY20 before BS-VI implementation since the industry is in last lap of BS-VI implementation, and the government’s expenditure in infrastructure and road development. It also said that cuts in repo rate (the rate at which the Reserve Bank of India lends to commercial banks) will be another growth enabler for the auto industry.
“The repo rate cut by 25 bps each at the last two monetary policy meetings will help consumer buying in upcoming quarters. Auto industry growth story likely to remain intact with GDP growth outlook,” SIAM said.
The major challenges, the industry body said, would be political uncertainty, consumer sentiments and, the monsoon, which according to Skymet would be in deficit by 4%.
SIAM in its FY20 outlook estimates passenger vehicles to grow 3-5%, consumer vehicles to grow 10-12% and two-wheelers to grow 5-7%.