Car sales will remain muted, growing at 3-5% in 2019-20, following a five-year-low growth of 2.7% in 2018-19, the Society of Indian Automobile Manufacturers (SIAM) said on Monday. This is the first single-digit growth forecast made by the auto industry body since FY14. In FY20, continued impact of higher cost, low credit availability, expected below-normal monsoon and general election-related uncertainties are likely to affect sales, according to Rajan Wadhera, president SIAM.
“The below-normal monsoon forecast is likely to impact the rural demand for few months this year,” said Wadhera, adding transition to BS-VI will start from December 2019, which will again see rise in prices, affecting demand. As per Skymet Weather Services, there is 55% probability of approximately 30% deficit in rains between June and September.
Passenger vehicle (PV) sales in 2018-19 was affected by hike in insurance premium, Kerala floods, fuel price rise and costlier finance. SIAM revised the sales forecast for PVs from the earlier estimate of 8-10% to 6% during the third quarter. Analysts said selective financing by NBFCs is also constraining volume growth and weakness will continue until general elections as consumers tend to hold major purchases. “We expect the weakness in volumes to continue until general elections across auto segments,” a report by Kotak Institutional Equities noted.
For two-wheelers, SIAM penned a 5-7% growth in FY20. Demand will remain under pressure due to hike in insurance premium last year and price increases on account of the new safety norms, according to Sugato Sen, deputy director general at SIAM. “The cost of two-wheelers has gone up by 10-15% and this will continue to keep customers on the back-foot for sometime. Therefore, we don’t want to sound too optimistic,” said Sen.
Two-wheeler volumes grew 4.86% in FY19, slowest in three years, hit by increase in prices due to compulsory five-year third-party insurance and the new safety norms that mandate motorcycles to come fitted with CBS/ABS systems. Companies started rolling out updated vehicles in December. The industry body expects commercial vehicles sales to grow 10-12% given lack of financing from NBFCs is yet to be resolved. In FY19, CV sales grew 17%. In addition, “the revised axle-load norms will remain a challenge for the next few months,” said Sen.
Last year, the government hiked the loading limit for CVs. As a result, fleet operators got more bandwidth to load goods and new purchases got postponed.