Signalling weak market sentiment due to the prevailing tight liquidity situation, vehicle registrations fell 6% in the quarter ended June from a year ago, data from the Federation of Automobile Dealers Associations (FADA) shows.

The commercial vehicle segment posted the highest fall at 14% followed by two-wheelers at 6.4% and three-wheelers at 6.1%. Passenger vehicle registrations fell the least at 1%.

According to the data collated in collaboration with the ministry of road transport and highways, Uttar Pradesh saw the most registrations with 2,93,905 units followed by Maharashtra with 1,56,716 units and Tamil Nadu with 1,49,698 units for the month of June.

“PV inventory levels continue to decrease giving much-needed respite, but two-wheelers and commercial vehicles inventory increases further and continues to remain a serious cause of worry for auto dealers,” the FADA says.

Registrations in June fell both year-on-year—5.4%—from 17,40,524 in June 2018 to 16,46,776 in June 2019 and month-on-month—7.6%. Registrations in May stood at 17,81,431 units. CVs suffered the highest drop at 19.3% year-on-year followed by two-wheelers at 5%. The FADA attributes the higher month-on-month fall to the delayed monsoon and year-on-year fall to the tight liquidity situation. “Despite starting the month with a positive outlook and hope, the monthly sales ended in a de-growth due to continued liquidity tightness and a much-delayed monsoon. Despite inquiry levels being reasonably strong, retail sales got affected as consumer sentiment continued to be weak and purchase postponement was seen across all segments,” FADA president Ashish Harsharaj Kale said.

PVs will see a healthy inventory correction due to manufacturers regulating production and reducing wholesale billings to dealers in June, the FADA said. “With the current trend continuing for a couple of more weeks, inventory in PVs will for the first time since the downturn will come down to healthy levels of around four weeks across many geographies and heading towards the FADA recommended and requested levels of 21 days,” it said. The FADA suggests that the new norm of 21 days of inventory will help dealers in managing viability and profitability better.

However, the FADA warns that the situation can worsen for two-wheelers, which have seen high inventory levels since the beginning of the downturn from last September. “With the ongoing pressure and premium on dealer working capital coupled with falling sales, this can turn into a serious situation for the dealers if not corrected at the earliest,” it adds.

With the outlook for the coming four-six weeks for the industry appearing negative, the FADA says it is looking to engage with policymakers seeking urgent measures to get back the industry on the path to growth. It says it had proposed partial or temporary reduction in the goods and services tax, an attractive scrappage policy and steps to ease liquidity. “We will pursue its implementation putting forward our logic for these measures to our government,” it says.

The FADA believes these measures along with a better monsoon can bring back stability to auto sales by end of August. The long-term outlook continues to be positive, it says, because of low vehicle penetration in the country. “With a vehicle penetration of less than 30 cars per thousand, the growth story of Indian auto sales will continue for the next decade and beyond. Countries within Asia and having similar or lower economic growth as India, like Malaysia, Indonesia, Thailand, Philippines and Sri Lanka, all have a far higher vehicle Penetration and their auto sales are still growing,” says the FDA president.

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