Passenger vehicle sales see sharpest dip in 18 years in May

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Published: June 12, 2019 2:03:26 AM

The last time PV sales dipped to this extent was in September 2001 (21.91% y-o-y), according to Society of Indian Automobile Manufacturers (SIAM) data.

Passenger vehicle sales see sharpest dip in 18 years in MayPassenger vehicle sales see sharpest dip in 18 years in May

Passenger vehicle sales plummeted 20.55% year-on-year in May, the sharpest monthly fall seen in nearly 18 years, as manufacturers trimmed production owing to poor demand and higher inventory piled up with dealers from the previous months. The last time PV sales dipped to this extent was in September 2001 (21.91% y-o-y), according to Society of Indian Automobile Manufacturers (SIAM) data.

Carmakers including Maruti Suzuki, Tata Motors, Mahindra & Mahindra (M&M) had cut production by shutting down plants during the April-May period between 4 to 10 days. The idea was to to reduce unsold inventory piled up from the previous years’ festive months, when demand was weaker than expected due to a hike in insurance premiums and costlier finance.

Analysts said volumes will likely be subdued due to selective financing by NBFCs, increase in vehicle prices on account of BS-VI norms and weaker consumer sentiment. “FY2020 could be a challenging year for the sector due to transition to BS-VI norms from April 1, 2020,” analysts at Kotak Institutional Equities noted.

This was the 11th consecutive month when despatches remain subdued. SIAM director-general Vishnu Mathur said numbers are down due to inventory correction by automakers. “We have not witnessed such slowdown in the last 15 years,” Mathur said.

According to the data, 16 out of 17 passenger vehicle makers reported a decline in domestic sales, with the top five car makers including Maruti Suzuki and Hyundai dragging down the numbers significantly in May.

SIAM deputy director-general Sugato Sen said the fall is not unexpected as consumer sentiments are still low due to high prices. “While retail sales are better than the wholesale numbers, inventory correction has led to dip in despatches,” Sen told FE.

Two-wheeler demand remained lacklustre for the seventh consecutive month in May, falling 6.56% y-o-y, dragged down by steep decline reported by companies including Hero MotoCorp and Honda Motorcycle. Demand was impacted by a hike in insurance premium in September 2018 and subsequent price hikes taken by companies on April 1 on account of new safety norms. Manufacturers increased prices in the range of `500-7,000 as they rolled out products with combined braking system (CBS) and anti-lock braking system (ABS) feature, mandatory for vehicles sold from April 1.

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.

Wholesales of commercial vehicles (CVs) too fell 10% y-o-y in May, with the management of major companies attributing the slowdown in demand to the general elections in May and halt in several infrastructure projects. “The M&HCV sales has taken the maximum hit in the domestic market, essentially due to higher capacity post increased axle load norms,” said Girish Wagh, president, CV business, Tata Motors.

After around seven months of growth in FY19, 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. Analysts at Nomura said relaxation in load axle norms continues to impact demand despite healthy traction in the tipper segment.

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