Automobile slideshow continues in May

Unwinding of inventory by dealers hits monthly auto volumes, while jump in tractor sales surprises

The overall mood in the economy continues to be despondent and it is visible every month in the form of automobile sales, which remained muted in May as demand for passenger vehicles continued to contract compared to last year. While weak consumer sentiment is a key reason, inventory unwinding by dealers has also affected headline numbers. According to analysts, passenger car sales were down 12 per cent in May, against the expectation of a seven to eight per cent fall. Some of this would have been led by the largest player in the car market, Maruti, which saw its volumes fall 13 per cent.

While the weakening consumer sentiment has kept its pressure on retail sales, May also had dealers reducing inventory, affecting headline sales numbers. Despite the weakness in demand, Maruti is confident of achieving a growth of six per cent in FY14. Other than Honda and General Motors, most other carmakers also saw a sharp fall in volumes during the month. For FY14, Citi Research expects volume growth of four per cent for the auto industry. Only Honda and General Motors did not see volumes fall, thanks to new launches.

The weakness is slowly spreading to other segments too. Diesel vehicles, light commercial vehicles and utility vehicles, all of which had held on so far, are now seeing volume pressure. The large base effect is showing in the headline numbers for UVs and LCVs. Overall commercial vehicle sales are down 16 per cent but medium and heavy commercial vehicle sales declined 22 per cent in May. Domestic LCV sales are down 11 per cent annually and seven per cent sequentially for Tata Motors to 24,200 units. Overall volumes of Tata Motors are down 24 per cent year-on-year and four per cent sequentially, as both commercial and passenger cars have done rather badly. Analysts do not believe there will be any pick-up in demand in the first half of the financial year.

The two-wheeler space, too, does not show much promise, even as volumes are expected to have risen two per cent for the segment. Honda's volumes are up merely three per cent, while Hero MotoCorp's volumes remained flat year-on-year. Bajaj Auto reported a three per cent increase in volumes in the domestic market while TVS reported a decline of eight per cent. No major turnaround expected soon.

Tractors have sprung a big surprise in May, as Mahindra & Mahindra reported growth of 24 per cent in this segment. A good monsoon would help a turnaround in tractor sales for M&M, which would help the company improve its margins. The sector is not yet out of the woods and signs of a revival would be visible only after a few months.