Auto Industry is coming back to normalcy post demonetisation

Categories: Blog
March 15, 2017Posted By Admin

In the automobile sector, the scrapping of INR 1,000 and INR 500 notes has had a huge effect. In the month of November itself the bookings were down 50%. The results for December 2016 were even more shocking for the auto makers. Vehicles sales in India are down to a 16 year low. For Dec 2016, vehicle sales declined to 1,221,929 units. This is a 18.66% decline. India last reported these kind of vehicle sales back in December 2000.

Demonetization impacted consumer sentiment creating a challenge environment for the auto industry. A larger impact has been in the rural markets as the number of cash transactions is high. Dealerships across the country have reported a drastic dip in walk-ins and inquiries, in both urban and more particularly in rural areas.

After three months, the industry is seeing some green shoots, recovering from the impact of demonetisation. The Union Budget has positively impacted customers’ disposable income and overall business sentiment. Footfalls and conversions at showrooms have improved, resulting in better sales during the month of February.

Passenger vehicle sales grew by 9.5 per cent in February and according to initial industry estimates, top nine carmakers sold around 2,56,342 units compared to 2,34,154 units dispatched in the year-ago period. The growth in passenger vehicles sales was led by Maruti Suzuki, Tata Motors, Toyota and Honda. The market was primarily driven by new launches, especially in the sports utility vehicle segment, which kept automakers busy last month.

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Maruti Suzuki, the country’s largest carmaker, continued its strong run in February with 11.5 per cent growth in domestic sales, at 120,599 units. Similar gains were posted by Korean carmaker Hyundai with a high demand for Creta, its compact SUV. Its sales volumes were up by 4 per cent to 42,327 units. Toyota’s numbers also went up by 12 per cent to 11,543 units on the back of Fortuner and Innova.  French carmaker Renault’s volumes grew by 27 per cent to 11,198 units, leveraging the success of Kwid. Tata Motors, too, stayed on the revival path as new models, Tiago and Hexa, triggered a 12 per cent rise in sales to 12,272 units. Honda Cars India Ltd (HCIL), which had struggled to increase sales volumes over the past year, benefited from the upswing in consumer sentiment and the newly launched Honda City. It posted a 9.4 per cent gain in monthly volumes at 14,249 units in February. But in spite of the upswing, utility vehicle maker Mahindra & Mahindra’s (M&M) volumes slipped by 13 per cent to 20,605 units last month.  American carmaker Ford’s volumes in the domestic market went up by 52 per cent to 8,338 units last month.

Commercial vehicle sales rose in February after a dip in January. Sales of light commercial vehicles (LCVs) grew by 9.3 per cent and those of medium and heavy commercial vehicles (MHCVs) by five per cent. Three-wheelers, however, remained under pressure in February with sales declining 21 per cent to 35,356.

Sales of two-wheelers, which constitute 80 per cent of the automobile industry’s volumes, were flat in February after three months of declines since November. Motorcycle sales, which rely heavily on rural demand, declined over three per cent in February while scooter sales grew 3.7 per cent.

Demonetisation and the resulting liquidity crisis resulted in volume compression of 11.3 percent during November 2016-January 2017 over the corresponding previous. Furthermore, with BS-IV emission norms coming into effect from April 17, there have been some inventory correction taking place across OEMs starting February 2017.

Overall, the Indian two-wheeler industry closed the first ten months of FY2017 with a growth of 8.3 percent, which although better than the industry growth rates over the past four fiscals, remain a far cry from the double-digit growth reported prior to November 2016. Over the medium term, the industry is expected to report a volume CAGR of 8-9 percent with demand expected to be driven by structural factors like favorable demographic profile, growing middle class and urbanization trend besides the moderate 2W penetration levels.