Domestic auto sales skid 12% in June, no immediate respite likely

Auto sales across all segments of the market continued the declining trend in June compared to the year-ago period as manufacturers slashed dispatches to keep inventory in check amid weak retail sales and poor buying sentiment.
 
Auto firms in India count deliveries to dealers as sales.
 
During the month, domestic sales across passenger vehicles (PVs), commercial vehicles (CVs) as well as two- and three-wheelers fell 12 per cent year-on-year, industry body Society of Indian Automobile Manufacturer (Siam) said on Wednesday.
 
Even as the industry body sticks to its earlier forecast of 2-5 per cent growth for PVs in the ongoing fiscal year, it sees the road ahead to be anything but smooth. It sees pre-buying ahead of BSVI, road projects and infrastructure as growth enablers but cautioned that there are multiple challenges which may keep sales in the slow lane.
 
These include a slowing of the economy and consumption, no goods and services tax (GST) benefits, no policy on vehicle scrappage, inventory liquidation and lack of availability of finance. The combined sales of all automobiles fell to 1.9 million units in June against 2. 2 million units a year ago. Among these, passenger cars saw the sharpest 24 per cent decline, followed by moped, which skidded 21 per cent. Vans and scooters slipped 18. 7 per cent and 14.81 per cent, respectively. Sales of trucks and buses also remained in the slow lane, falling 12 per cent year-on-year. CV volumes were dragged down by sales of medium and heavy CVs, which dropped 18.65 per cent to 21,512 units over the same month a year ago. 
 

Even as the slowdown is broad-based, impacting all sectors, PVs, which include cars, SUVs and vans, have taken the maximum hit. Starting September quarter of FY19, when it slipped 3.6 per cent, PV sales in India have been declining for four successive quarters in a row, according to Siam’s quarterly presentation. It skidded 18.4 per cent in the first quarter of FY20, the sharpest in more than a decade. The fall was largely led by market leader Maruti Suzuki India.
 
Siam attributed contraction in auto sales to multiple factors ranging from a slowing economy, low consumer sentiment, lack of finance availability to drop in rural demand and increase in insurance cost.
 
New launches helped utility vehicles or UVs limit the falling sales. It fell by 5 per cent in June over a year ago. For CVs, which so far had weathered the slowdown, it was the first decline in the June quarter of FY20 after six quarters of brisk growth. 
 
The pain for automobile firms is unlikely to ease any time soon as weak rural demand and a delayed monsoon weigh on buyer sentiment.
 
The measures announced in the Budget to ease liquidity crisis faced by non-banking financial companies (NBFCs) will show the impact with a lag. Analysts warn of more pain ahead. “Even after inventory de-stocking, the existing inventory at dealerships continues to remain at a higher-than-normal level for most players,” said Mitul Shah, vice-president, research, Reliance Securities. This would continue to impact the wholesale dispatches in the first half of 2019-20. Companies, including Maruti Suzuki, have been paring production month after month to align it to demand.