The Indian automobile industry saw many firsts in the just concluded financial year. The country produced more than four million passenger vehicles in 2017-18, 5.5% more than in the previous year, and over a million utility vehicles — rising almost 20% from the previous year.
Manufacturers sold a record number of two-wheelers, passenger vehicles and commercial vehicles in the domestic market despite teething problems related to GST and lingering effects of demonetisation.
All-time high
The sales of passenger vehicles — which include cars, utility vehicles and vans — grew 7.89% to an all-time high touching 3.3 million units for the year. The industry and analysts expect the momentum to continue in the new financial year, anticipating demand to be fuelled by the improvement in economic activity and normal monsoons. However, issues such as rising interest rates, fuel prices, advent of electric vehicles and the impending switch to new emission norms could curtail the demand to some extent.
“In FY19 passenger vehicle sales are expected to witness high single-digit growth,” Vishnu Mathur, director general of Society of Indian Automobile Manufactures (SIAM) said recently at a conference to announce the data. “We ended the year on a positive note with almost every segment posting growth, except passenger buses. This reinforced the fact that despite having a difficult year, the auto industry showed resilience.”
The country’s largest carmaker Maruti Suzuki, whose domestic sales grew close to 14% last fiscal, higher than the industry growth of almost 8%, is confident of double-digit growth in the current year as well, the company’s senior executive director, marketing and sales, R.S. Kalsi said.
He pointed out that the growth in the economy, coupled with the recent increase in dearness allowance for government employees and pensioners, and buoyancy in rural markets are expected to spur demand. However, increasing fuel prices may play spoilsport.
On Sunday, while petrol hit ₹74.40 a litre — the highest level under the current government, diesel rates touched a record high of ₹65.65.
‘Traders to begin buying’
According to the industry body, sales of popular models with substantial waiting periods is likely to support growth in the current fiscal. Additionally, it expects teething problems with GST to be over and the trading community to start contributing to volume growth.
In an emailed response, Honda Cars India said, “In FY18, we registered 8% growth… The new fiscal offers tremendous opportunity for HCIL as the company has lined up three big launches enhancing the product line-up with the All New Amaze, All New CR-V and Civic.”
Sridhar V, partner at Grant Thornton India, said the passenger vehicle (PV) segment is expected to post “high single-digit growth or a possible double-digit growth in the current fiscal.”
Within the segment, utility vehicles are expected to continue driving demand due to a shift in consumer preference. “People don’t want to own multiple cars. In urban areas, metro [rail] and shared mobility take care of everyday needs… they don’t want separate cars for everyday commute and weekend travel. So, even a lot of first-time buyers are opting for a UV, and not a small car,” Abdul Majeed, partner, Price Waterhouse said. Owing to strong double-digit growth, the share of utility vehicles (UV) is increasing gradually while that of passenger cars is declining. UVs accounted for 30% of domestic passenger vehicle sales in Q4FY18 as compared with 26% a year earlier, whereas the share of passenger cars declined from 68% to 65%, according to ICRA.
It added that in FY18, Maruti Suzuki emerged the largest UV player, a position held by M&M since the start of the decade.
Slow growth in cities
The rural market is expected to be a major growth driver this year, especially with growth in public spending in such regions coupled with the forecast of a normal monsoon. The contribution of the top 20 cities that generate about 50% of passenger vehicle sales have shown slow growth in the last three to four years, according to SIAM data. “What we are seeing now is more demand from smaller towns and semi-urban areas…The rural growth story will continue to support the industry in FY19,” Mr. Mathur had said.
“Rural market will fuel growth. The rural market grew last year too… even though the base is lower,” Mr. Sridhar said.
Puneet Anand, senior vice president and group head, Marketing, at Hyundai Motors India, agreed. “We expect sales momentum to continue this year on the back of a revival in the economy and rising disposal incomes. The market in metros is maturing; the growth this year should be fuelled by tier 2 and tier 3 cities.”
In a presentation, SIAM said India’s GDP growth in FY19 is expected to rebound to 7.5% from 6.6% in FY18.
Hyundai’s sales in rural areas rose from 39,000 units in calendar 2014 to 82,000 last year. This is about 16% of the company’s retail sales for the last year. The company also plans to increase its retail footprint in such areas this year to 500 from 450 showrooms now. The country’s largest carmaker Maruti Suzuki saw slightly higher growth of 15% in the rural market compared with the urban market last fiscal.
The forecast of normal monsoons and a host of announcements in this year’s Union Budget aimed at strengthening the rural economy and boosting consumption are likely to rev up demand.
Hyundai, which posted 5.4% growth, spurred by models such as Verna, Grand i10 and Creta, is confident of a good 2018. “We will continue to maintain our market share… and growth will be at par with the industry,” Mr. Anand said. Mr. Sridhar said demand may be seen in urban areas as well, given the expected growth in economy and investments in building roads and infrastructure.
However, high commodity prices, interest rates, and the focus of EVs could dampen the demand slightly. “Prices of all main commodities used in the manufacture of vehicles increased sharply in the last one year…Vehicle finance rates are still very high,” as per SIAM, while India Ratings pointed out that product introductions, adoption of stricter safety and emission norms, and development of electric vehicles would necessitate increased capital expenditure in the medium term.
The import duty hike on completely knocked down units could also impact demand, Mr. Sridhar said, adding the industry may see fewer new model unveilings as firms ready for the new BS VI norms and EV roll-outs.
Mr. Majeed said, “The base for growth this year will be higher... Oil prices are going up, so we may see inflationary trends; and RBI may increase interest rates. So, borrowing costs may go up. Then there are increasing commodity prices.” He, however, added new emission norms could also act as a trigger for demand in a place like Delhi where the fuel has already been made available.
These hurdles, however, may be minor, as the trend was in favour of growth, Mr. Sridhar said.
Exports of passenger vehicles in the country, which declined for the first time in a decade, are also expected to see a recovery in the current fiscal. “FY19 could see a recovery in passenger vehicle (PV) exports, which declined in FY18 after growing consistently since FY12, driven by utility vehicles,” according to India Ratings and Research.
It added that OEMs or original equipment manufacturers were focused towards meeting increasing domestic demand for utility vehicles in FY18 , and faced delays in GST refunds, which however has streamlined now.
“PV exports from India would be aided by the export focus of certain multinational OEMs such as Nissan-Ranault alliance, Ford India Private Ltd, FCA India Automobiles Pvt. Ltd and General Motors India Pvt Ltd,” it said, adding that high capacity utilisation at Maruti Suzuki India and Hyundai Motor India are likely to constrain the capacities available for PV exports with these manufacturers.
Over 2020-2021, the upcoming facilities of new entrants, such as Kia Motors Corporation, Korea and SAIC Motor Corporation Limited, China, would add to exports from India. Additionally, the demand for Indian-made vehicles could be fuelled globally with Bharat Stage VI compliant vehicles being made mandatory from April 2020, it said
