Automobile sales to grow as economic activities improve

After a gap of about two years, sales of light commercial vehicles (LCVs) recorded an uptick last month on the back of improved economic activity.

By: | Updated: March 20, 2016 11:14 PM

Car sales

Vehicle sales across categories registered a 13.91 per cent increase to 20,35,821 units in October from 17,87,160 units in the corresponding month. (Reuters)

After a gap of about two years, sales of light commercial vehicles (LCVs) recorded an uptick last month on the back of improved economic activity.

The country’s leading commercial vehicle manufacturers reported a growth of 6.83 per cent to sell 36,415 LCVs in October. Sales of medium and heavy commercial vehicles (MHCVs) further went up by a robust 23.97 per cent in the same period.

Upward trend in freight movement/freight rates, increase in infrastructural activities, improved liquidity in financial markets and extended replacement buying are expected to keep the sales momentum going in the coming months.

Overall, sales of commercial vehicles grew by 12.73 per cent (to 58,596 units) in October and by 8.02 per cent (to 3,73,191 units) in the first seven months of the financial year.

Vishnu Mathur, director general, Society of Indian Automobile Manufacturers (SIAM) said, “Sales of commercial vehicles are reflecting a revival in the economy. We see demand for the light commercial vehicles coming back. We expect commercial vehicle segment to scale peak level by first half of next year.”

The commercial vehicle segment had posted peak sales of over 90,000 units in March 2012. Abdul Majeed, partner, PricewaterhouseCoopers, explained, “Heavy and medium commercial vehicles sales are rising due to the replacement demand as well as hope of revival in the overall economy. Even the freight demand is reflecting an upward trend while LCV sales will also gradually pick up in next quarters. There are many favourable indicators to propel growth in the automotive sector such as low interest rates, pent up demand across the segment, low fuel prices etc.”

What is also adding to the sales tally, said Sugato Sen (deputy director general, SIAM), is an improvement in liquidity in financial markets.

“Transport companies were burdened by bad debt. Particularly in LCVs, finance was a bottleneck. Now with money coming in, sales are picking up. It has been nearly two years since the LCV segment has shown some growth. Things should improve from here,” said Sen.

Besides, the gradual opening up of the mining sector and award of infrastructure projects are expected to generate demand for MHCVs going ahead. Siddhartha Lal, chief executive officer and managing director, Eicher Motors said, “The demand from the mining sector is coming up fairly well. Construction is still on the lower side. But sales should pick pace.”

With construction work on projects already awarded by the government expected to commence in the coming months, most industry observers expect healthy demand in the commercial vehicles market.

Majeed, however, added a word of caution. “After the festive season, the demand might not be sustainable especially due to low off-take in the rural economy as result of drought situation in the major states and also because overall investments cycle has not picked up in the economy to support job creation and growth in the economy. If overdue reforms are accelerated both the Indian economy in general and auto sector in particular will grow significantly,” he said.

In the meantime, strong demand during the festive season pushed up sales of passenger vehicles by 21.46 per cent to 2,68,629 units. Mathur said, “Festival season has brought in cheer to the auto industry as sales have risen across categories during the last month.”

Various segments, including passenger cars, motorcycles, scooters posted good growth during the month.

As per SIAM data, total sales of two-wheelers rose 13.31 per cent last month to 1656235 units as against 14,61,712 units in October 2014. While sales of motorcycle sales increased by 5.66 per cent to 10,65,856 units, those of scooters went up by 36.8 per cent to 5,25,138 units.

“Motorcycle sales are heavily dependent on rural markets. Though sales have increased but we would like to see if it is sustained in the next few months,” Mathur said.

Vehicle sales across categories registered a 13.91 per cent increase to 20,35,821 units in October from 17,87,160 units in the corresponding month.

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