The automobile industry had a forgettable festival season and the lean trend extended into early December. But the last couple of weeks of December saw a rise in retail sales as buyers capitalised on year-end discounts from manufacturers.
There may have also been a turnaround in sentiment with fuel prices reversing sharply and interest rates remaining steady. So, has the industry put the lean trot of the last few months behind it or is this just a fleeting rise due to temporary factors? Let’s take passenger vehicle sales first.
Dec. registrations higher
The Federation of Automobile Dealers Associations (FADA), in its maiden report on vehicle registrations, speaks about positive consumer sentiment witnessed post the lacklustre festive season.
The last 15 days of December saw a surge in vehicle registrations indicating a demand uptick, FADA said.
Though the retail sales data for the 15 days is not available yet, as per the registration data collated by FADA, passenger vehicle registrations in December were down 7% compared with November while commercial vehicle registrations were down 15% in the same period. The extent of fall in registrations is lower than what would have been the case but for the [discount- led] uptick witnessed in the last 15 days.
FADA president Ashish Harsharaj Kale said, “We are seeing initial signs of revival in the industry as compared to the recent festival season. Passenger vehicle sales [have] arrested further de-growth. Good retail momentum in last 15 days [of December] indicates [that] sentiment [is] turning positive.”
Mr. Kale said “customer interest is still healthy, indicating sales will come back in its previous growth trajectory sooner than later. The auto industry will once again clock real growth close to double digits by the end of this FY.”
What is likely to contribute to rising sales is the reduction in fuel prices and likely liquidity generation in the system through policy intervention.
Hetal Gandhi, director, CRISIL Research, agrees that the rise in passenger vehicles sales in December is due to record high discounts offered by OEMs to clear the old inventory.
“Also, 2-4% price hikes announced in December by major OEMs effective from January 2019 led to pre-buying, this resulted in inventory days lowering to 30-35 by December end,” Ms. Gandhi said.
As per CRISIL’s interactions with dealers, retail sales were muted during first 10 days of January 2019 on account of inauspicious period which will continue till Makar Sankranti/Pongal i.e. Jaunuary 14 and 15.
“To add to it, 2-4% hike in prices by major players from January 1 is expected to play spoilsport for retail demand. We expect Q4FY19 to show muted growth in mid-single digits on a year-on-year basis,” Ms. Gandhi said.
T.T. Srinivasaraghavan, MD, Sundaram Finance Ltd., the oldest and one of the largest vehicle financiers in the country, points out that the slowdown in car sales had begun earlier in the financial year with the rise in fuel prices. “I think buyer fatigue and fewer new launches have also contributed to the slowdown in the passenger cars segment,” he said, pointing out that sales is unlikely to improve dramatically in the current quarter.
Brighter outlook for CVs
On the commercial vehicles (CV) front, the outlook appears brighter, especially for the tipper segment which is expected to continue to do better than haulage vehicles.
Historically, sales of commercial vehicles in Q4 is observed to be higher than the sales in the other remaining quarters. Transporters prefer to make purchases between January and March so that they can take credit for depreciation right away .
Putting the high growth rate in the early part of this fiscal in perspective, Mr. Srinivasaraghavan said: “It is important to bear in mind that the CV segment, in the first half of the year, had registered high growth coming off a low base in the comparable period (H1FY18) last year. The spike in growth that one saw in H1 this year has kind of cooled off in Q3.”
In the last 15 months, a lot of the growth in the CV segment was driven more by the tipper segment than the haulage segment, driven by road building and increased investment in infrastructure development, he said.
The haulage segment, in his view, will continue to be sluggish. The revision in axle-load norms and the trucks becoming bigger in size have also impacted sales of haulage vehicles. “Unless something dramatic happens in the overall economy, I do not see a pick-up in sales in the haulage space,” he said.
Shriram Transport Finance Co. Ltd., another major vehicle financier, believes that CV sales will improve from this quarter. “There was increased sales in the last part of December and it was primarily on account of heavy discounts being offered by OEMs. But in the first week of this month, sales have slowed down. However, sales will improve post January 15 and will continue till March. We expect reasonable rise in sales till March,” said Umesh Revankar, MD & CEO, Shriram Transport Finance Co. Ltd.
Mr. Revankar is confident that CV sales will be buoyant in the current quarter. “There will be buoyancy in this quarter as [EMI] collections have been good,” he said.
CRISIL Research’s Ms. Gandhi is also optimistic about the prospects in the current quarter. “We expect the impact of the liquidity crunch to soften going ahead in Q4, aiding sales. Thus, MHCV sales in Q4 are expected to see an uptick on a sequential basis (as compared with Q3FY18). However, sales would remain largely flat year-on-year in the last quarter of the fiscal. We forecast goods-carrying MHCV sales to end at 16-18% in FY19 thanks to the great first half,” she said.
Mr. Srinivasaraghavan agrees, “Traditionally, the CV segment has seen an uptrend in Q4 and we expect this to be the case this year as well. CV sales, especially tippers, are expected to maintain their growth momentum.”
