Despite hefty discounts and other promotional schemes in November, consumers chose to stay away from buying two-wheelers in enough numbers as sales slipped by an over 15% year-on-year (y-o-y), the 12th consecutive month of decline.
Management of top manufacturers including Hero MotoCorp and TVS Motor Company said demand slipped as Diwali fell in October, which typically accounts for over 40% of the festive season sales. In October however, despatches to dealers had declined by 14% y-o-y but the companies had claimed that retail sales — vehicles sold by dealers to customers — had improved. According to Federation of Automobile Dealers Association (FADA), retails of two-wheelers had grown by 5% y-o-y in October.
TVS Motor Company and Royal Enfield’s sales fell 26% y-o-y an 8%, respectively. “Diwali falling a month earlier and planned adjustment of BS-IV stocks is reflecting in the sales growth difference between November 2018 and November 2019,” a TVS Motor spokesperson said. So far this fiscal, two-wheeler sales have fallen over 16% y-o-y.
Most manufacturers are producing lesser units of BS-IV models as from April 2020, only BS-VI compliant units can be sold.
Any unsold BS-IV inventory after March 31, 2020, will either become a scrap or will be exported to neighbouring countries, which will involve significant costs. A Hero MotoCorp spokesperson said the despatch numbers reflect the company’s intent to ensure a smooth transition to BS-VI norms.
Analysts believe rural demand is still weak and may remain sluggish in the near term, given that prices will further rise when all BS-VI models will be launched. "Two wheeler retails have remained subdued as rural recovery is yet to play out. Companies have started launching BS-VI models with 13-15% higher prices than existing models which could be a key headwind for demand into FY21," analysts at Nomura said.
Demand slipped since September 2018 when third party insurance premium increased multi-fold and thereafter new safety norms led to increase in prices. Interest on loans also increased following defaults by some NBFCs leading to a dull festive demand in 2018. As manufacturers continued to despatch in anticipation of higher demand, inventory rose substantially. Massive production cuts by manufacturers in the past nine months have helped them bring down the stock levels.
Analysts at CLSA said weak economy is likely to continue impacting demand. "Manufacturers appear uncertain on the sustainability of the pickup shown in festive season given the weak economy and cost push from upcoming BS-VI emission norms," they wrote.
The decline in passenger vehicles sales was comparatively lesser in November as sales fell by an estimated over 4% y-o-y. While Maruti Suzuki reported 3.2% y-o-y dip in sales, volumes of Tata Motors and Mahindra & Mahindra declined 39% and 10% y-o-y. Volumes of Hyundai grew by a marginal 2% y-o-y at 44,600 units on account of sustained demand for new launches including compact SUV Venue and hatchback Grand i10.