Losing grip: Auto sales in April-June report sharpest fall since 2008-09

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Updated: Jul 12, 2019 6:55 AM

For the first time in many years, all the 17 carmakers reported negative sales. Two-wheeler sales, too, slipped 12% in the April-June qtr, the worst since a 15% drop in the third quarter of 2008-09

For the first time in many years, all the 17 carmakers reported negative sales in Q1FY20. (Representational image)For the first time in many years, all the 17 carmakers reported negative sales in Q1FY20. (Representational image)

Auto sales across categories fell the sharpest (-12% year-on-year) since 2008-09 in the April-June quarter, impacted by production cuts and shutdown of plants by major automakers to manage inventory, which is higher than normal due to poor demand.

The quarter witnessed the biggest quarterly fall with a 17% decline in the third quarter of 2008-09 across segments such as passenger vehicles, commercial vehicles, two and three-wheelers, according to the Society of Indian Automobile Manufacturers (Siam) data.

Passenger vehicle (PV) volumes dipped 18% year-on-year during the quarter, highest since the 23% y-o-y fall in the third quarter of 2000-01, as prices remained high due to hike in insurance premium, safety norms and costlier finance. Despite the shutdowns and production cuts, inventory stayed at levels higher than the normal 20-30 days.

For the first time in many years, all the 17 carmakers reported negative sales in Q1FY20. Companies, including Maruti Suzuki, Tata Motors and Mahindra & Mahindra (M&M), had shut down their plants in June for 3-9 days. This was on the top of the cut on output since January to reduce unsold inventory piled up from the 2018 festive season, when demand was weaker than expected due to hike in insurance premiums and costlier finance.

Siam president Rajan Wadhera said this prolonged slump in domestic sales could force automakers to cut jobs and curtail future investments. “This is the worst slump in auto sales ever. Earlier, the slowdown in sales was restricted to one or two categories. Hiring is already frozen in the auto industry and we are staring at job losses if the situation persists,” he said.

Analysts said the increase in vehicle prices due to regulatory changes and higher financing costs are expected to impact car sales for a few more months till the festive season. “It’s a grim volume scenario at present partly due to a weak model launch phase,” analysts at Axis Capital wrote.

Two-wheeler sales, too, slipped 12% in the April-June quarter, the worst since a 15% decline in the third quarter of 2008-09. In June, volumes remained lacklustre for the eighth consecutive month.

Bajaj Auto executive director Rakesh Sharma last week said he does not see any green shoots going ahead. “We have assumed that it will be a muted growth for the industry going ahead. The inventory levels are currently at 6-8 weeks,” Sharma said.

Analysts said high inventory with dealers led to weakness in wholesales volumes. Besides, price hikes due to new safety norms from April 1 weakened demand. “We expect the industry to remain weak in the near term on account of high and rising cost pressure by price hike due to safety norms,” analysts at Nomura wrote earlier.

Wholesales of commercial vehicles (CVs) too fell nearly 10% y-o-y in Q1FY20, due to a halt in several infrastructure projects and the revised axle load norms.

“Both M&HCV and the SCV segment has been hit by poor consumer sentiment, falling freight rates and difficulty of funding from NBFCs,” said Tata Motors’ CV business president Girish Wagh.

CV volumes started dwindling since November 2018. The government last year hiked the loading limit for CVs, as a result of which fleet operators got more bandwidth to load goods and new purchases are getting postponed.

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