Prolonged slowdown: Feb auto sales at a new low due to poor demand

Dealers are looking to cut down on their inventory in March and April

The February sales for the auto industry fell to a new low as weak consumer demand continues into a sixth straight month.

Total sales in retail declined by 8.06 per cent, whereas wholesale sales have dropped 3.05 per cent, according to data from the Society of Automobile Manufacturers Association ( SIAM). In retail, passenger car sales dropped by 8.25 per cent, while two-wheeler and commercial vehicle sales dropped by 7.97 per cent and 7.08 per cent respectively. Dealers said inventory levels across all categories are now unsustainable.

According to the Federation of Automobile Dealers Associations (FADA) total auto sales in February 2019 stood at 14,52,078 as compared to 15,79,349 units in the same period last year.  The year-on-year drop stands at 8.06 per cent drop, but the month on month drop is 15.30 per cent from 17,14,400 units sold in January 2019.

Passenger vehicles sales dropped  8.25 per cent on year to 2,15,276 units in February 2019 from 2,34,632 units, a year ago. The  month-on-month (January 2019: 3,01,603 units) drop was 28.62 per cent.

Last week, SIAM said the industry sold 20,34,768 units in February, down 3.65 per cent as compared to 21,11,804 units in the same month last year. 

SIAM data said passenger vehicles sales witnessed a fourth consecutive monthly decline of 1.11 per cent at 272, 284 units in February 2019 compared to 275,346 units in the corresponding period a year ago. In November, December and January passenger vehicle sales declined by 3.43 per cent, 0.43 per cent, and 1.87 per cent respectively. Commercial vehicle sales are down by 0.43 per cent and sales of two-wheeler also decreased by 4.22 per cent at 1,615,071 units due to low urban demand and impact of the revised insurance premiums.

According to a survey conducted by FADA, the current inventory levels are as following:

— PVs ranges from 50-60 days

— 2W ranges from 80-90 days
— CV ranges from 45-50 days

Category	Feb'18	Jan'19	Feb'19	YoY change (%)	MoM change (%)
2W	12,22,883	13,00,265	11,25,405	-7.97%	-13.45%
3W	56,045	54,266	50,263	-10.32%	-7.38%
CV	65,789	58,266	61,134	-7.08%	4.92%
PV	2,34,632	3,01,603	2,15,276	-8.25%	-28.62%
Total	15,79,349	17,14,400	14,52,078	-8.06%	-15.30%
Source: FADA Research

FADA's President Ashish Harsharaj Kale said that after a month of spike in passenger sales in January which was largely due to year-end stock clearance getting extended and few new Launches which generated some excitement, the industry is once again witnessing a downward trend as February turned out to be one of the slowest months for auto sales.

Two-wheeler sales dropped by 7.97 per cent in February 2019 to 11,25,405 units from 12,22,883 units in the year-ago period.

Commercial vehicles sales dropped by 7.08 per cent to 61,134 units in February 2019 from 65,789 units. Three wheeler sales dropped by 10.32 per cent in February.

"Indian auto sales are experiencing a prolonged slowdown as the industry has already seen six months of slowing sales and growth reversal and positive triggers in the near term appear few", said Kale.

Starting with the huge hike in insurance costs in September, the market has seen a lot of negative factors in the past few months, leading to postponement in purchase decisions and an overall weakening of consumer sentiment, he said.

FADA expressed serious concern that inventory levels have reached alarming proportions and in some geographies has breached the unheard level of 100 days of stock as per today's retail situation.

FADA, however, thinks the dip in demand is temporary. 

High operational costs as well as increased working capital needs in a tight liquidity environment, prolonged maintenance of high inventory and its additional costs is unsustainable and with demand continuing to be a challenge, dealers are looking to reduce their inventory in  March and April, said Kale.

FADA urged OEMs to take realistic stock of the current retail situation and recalibrate their production. It is imperative to regulate dealer invoicing in March and April to facilitate a return to stock normalcy for dealerss to maintain a sustainable business environment.

Category	Feb'18	Jan'19	Feb'19	YoY change (%)	MoM change (%)
2W	12,22,883	13,00,265	11,25,405	-7.97%	-13.45%
3W	56,045	54,266	50,263	-10.32%	-7.38%
CV	65,789	58,266	61,134	-7.08%	4.92%
PV	2,34,632	3,01,603	2,15,276	-8.25%	-28.62%
Total	15,79,349	17,14,400	14,52,078	-8.06%	-15.30%
Source: F A D A Research

Category	Feb'18	Jan'19	Feb'19	YoY change (%)	MoM change (%)
2W	12,22,883	13,00,265	11,25,405	-7.97%	-13.45%
3W	56,045	54,266	50,263	-10.32%	-7.38%
CV	65,789	58,266	61,134	-7.08%	4.92%
PV	2,34,632	3,01,603	2,15,276	-8.25%	-28.62%
Total	15,79,349	17,14,400	14,52,078	-8.06%	-15.30%
Source: F A D A Research