Car sales growth may slip to a four-year low in FY19 on slow demand

Based on the data compiled by SIAM, the domestic passenger vehicle market has expanded by 6.1 per cent during the April-October period of FY19

The pace of car sales growth in the world’s fifth biggest market, India, is set to hit a four-year low of below six per cent in financial year 2018-19 as multiple factors continue to slow down demand. Leading industry researchers including IHS and JATO have revised sales forecast for the Indian market after a lacklustre festive season. The industry had grown by 7.9 per cent in FY18 and 9.2 per cent in FY17. A total of 3.28 million passenger vehicles were sold in domestic market last year. 

Based on the data compiled by the industry’s apex body Society of Indian Automobile Manufacturers (SIAM), the domestic passenger vehicle (cars, vans and utility vehicles) market has expanded by 6.1 per cent during the April-October period of FY19. The industry’s growth, measured by dispatches to dealerships, was almost 20 per cent in the April-June quarter of the ongoing fiscal on a low base of previous year when the transition to GST impacted dispatches.

However, the industry volumes declined in each of the three months of the second quarter, bringing the rate of growth down to 6.8 per cent for the first half (April-September). The trend reversed in October but growth remained muted with an increase of just 1.5 per cent YoY, making the festive season one of the dullest for the car makers. The cumulative growth till October softened further to 6.1 per cent.

Financial Year	Passenger vehicle sales in domestic market (in million)	Per cent growth YoY
FY15	2.60	3.90
FY16	2.78	7.24
FY17	3.04	9.23
FY18	3.28	7.89
FY19 (April-October)	2.02	6.10 (expected to slip well below 6 per cent for entire FY)

Ravi Bhatia, president (India), JATO Dynamics said the FY19 growth rate will slip below 6 per cent to at least 5.8 per cent. He said dealers will be cautious of stocking cars after a sluggish festive season and in the run up to the calendar year change. Any unsold car manufactured in a particular calendar year is sold at a high discount. “The lending environment will be under pressure as NBFCs have been hit. The high cost of insurance remains a challenge and overall sentiment boosters are missing,” he said. JATO, which usually follows the industry’s performance on a calendar year basis, has cut the 2018 volume forecast by 53,000 units or 1.6 per cent. “Optimism is getting mixed with caution after a series of events such as Kerala floods, disappointing festive sales and the health of the lending sector,” said Bhatia. JATO has also cut forecast for 2019 calendar year by almost three per cent or 93,000 units.

JATO’s forecast cut comes after the chairman of country’s top car maker Maruti Suzuki said last month that it is not going to be an easy task to achieve the firm’s double-digit volume growth forecast for FY19. “We do not know what will happen in the second half of the year. The company will make its best efforts to achieve a growth of ten per cent,” said Bhargava. 

Vishnu Mathur, director general at SIAM said purchase decisions were getting postponed. “I cannot say if this loss in sales can be recovered during rest of the year. If the situation does not change and no corrective action is taken by the government to improve overall sentiments in the market then the forecast made at the beginning of the year will not be achieved”. The industry body had projected a growth of 9 to 11 per cent for FY19.

IHS had forecast the 2018 calendar year growth at 11 per cent at the beginning of the year but made two revisions by a per cent each- in June and in October- to 9 per cent. Gaurav Vangaal, senior analyst (automotive forecasting) at IHS Markit, said next year’s growth could be even lower due to firm interest rates and price increases due to introduction of safety norms in the older car models.