Automobile demand was hit hard by the withdrawal of high-value currency, with total sales of cars, two-wheelers and commercial vehicles shrinking 18.7 per cent in December — the steepest such drop since December 2000.
While sales of two-wheelers fell the most, slumping 22 per cent to post the biggest decline since 1997, passenger vehicle sales fell 1.36 per cent and commercial vehicles sales slid 5 per cent, according to data released by the Society of Indian Automobile Manufacturers (SIAM) on Tuesday.
“This is the highest decline across all categories since December 2000, when there was a drop of 21.8 per cent in sales,” SIAM Director General Vishnu Mathur said. “The reason is largely due to the negative consumer sentiment in the market due to demonetisation.”
LCVs buck trend
Light commercial vehicles emerged as the only segment that managed to grow in December, rising 1.15 per cent.
Vehicle sales across categories declined to 12,21,929 units from 15,02,314 units in December 2015.
Total two-wheeler sales, which witnessed the steepest decline since SIAM started recording data in 1997, slumped to 9,10,235 units. Motorcycle sales, a large chunk of which is recorded in the rural areas, declined 22 per cent to 5,61,690 units.
Sales of scooters, which are more popular in urban markets, saw the biggest decline in more than 15 years, falling 26.4 per cent to 2,84,384 units in December. The previous biggest decline of 27.1 per cent was recorded in March 2001.
“Almost half of two-wheeler sales come from rural markets, which have been hit hard by demonetisation,” Mr. Mathur said.
Abdul Majeed, partner at Price Waterhouse, said demonetisation had had a big impact on rural areas and the north and east regions, where cash transactions were typically high.
“Large two wheeler players have been impacted mainly due to their high rural exposure. The demand for medium and heavy commercial vehicles, as expected, has been impacted significantly due to negative sentiments of freight operators with regard to future economic activities and its impact on freight demand,” Mr. Majeed said. “The only bright light in this segment are light commercial vehicles which have done better due to some pent up demand.”
SIAM, which had in September forecast growth of 10-12 per cent for passenger vehicles in 2016-17, hasn’t yet revised its forecast. “However, with the way things are going and if the upcoming Union budget doesn't bring big steps to boost consumer sentiment, we may miss our forecast,” Mr. Mathur said.
While domestic car sales declined 8.14 per cent, the most since April 2014, utility vehicles sales rose 29 per cent. Total passenger vehicle sales (including cars, UVs and vans), declined to 2,27,824 units in December 2016. The previous biggest decline in sales witnessed by the segment was in October 2014 with a drop of 7.52%.
“Demand holdback is significantly visible in the auto sector on account of discretionary spends and demonetisation,” Sridhar V., partner at Grant Thornton India, said. “Both lower base and new models introduced” had helped some passenger vehicle makers show growth, lending “a bright spot”.
Terming the dip a “temporary phenomenon”, Mr. Mathur said the industry was likely to see a reversal in fortunes in the next two or three months. He hoped the budget would help boost consumer sentiment and improve disposable incomes.
Mr. Mathur pointed out that there was almost one month’s stock in the market and it was important for the industry to sell as much of this stock as possible before the end of the financial year as many segments would move to tighter emission norms starting April 1.
“We do hope that the budget will not bring any shocks for the industry, instead it will bring in positive sentiments and positive measures such as income tax relaxation, fleet modernisation programmes, incentives for electric vehicles and may be reduced interest rates, that will increase disposal income,” Mr Mathur said.
