Auto sales enter slow lane as firms clear inventory

Passenger vehicle sales grew 4.48% while 2-wheeler sales rose 8.72% from a year ago

Graphic: Paras Jain/Mint
Graphic: Paras Jain/Mint

Sales growth sputtered for passenger vehicles and two-wheelers in October as manufacturers—they called it a “one off dip’’—focused on clearing inventory built during the festival season.

Retail sales remained high, according to industry lobby Society of Indian Automobile Manufacturers, or Siam, which reports wholesale figures.

Sales of passenger vehicles grew 4.48% to 290,000 units while two-wheeler sales grew 8.72% to 1.8 million units from a year ago.

Siam said sales reflected a “one-off dip” and showed confidence to achieve the 3 million sales mark for passenger vehicles during the fiscal—a first for India.

“It won’t be a trend,” Sugato Sen, deputy director general, Siam, said. “We have reports suggesting retail sales were pretty high during the month.”

Auto makers typically push vehicles to dealers ahead of the festival season that starts with Onam and, as they approach Diwali—considered to be another auspicious time to buy vehicles—they attempt to clear the inventory that affects wholesale figures.

To be sure, in September, sales of passenger vehicles (PVs) at about 21% were the highest in terms of monthly sales in more than four years. The increase in demand for automobiles in the country had prompted Siam to revise its growth projections to double digits for the fiscal to March.

A good monsoon and wage hikes for government employees are expected to boost consumption, Sen said. India’s economic growth, too, has improved significantly. The economy grew 7.6% in 2015-16 and the Narendra Modi government expects this to rise to close to 8% in 2016-17.

The International Monetary Fund (IMF) in October raised it a tad, citing the resilience of the economy and robust growth momentum. It now expects the economy, Asia’s third largest, to expand 7.6% in 2016-17, up from its earlier projection of 7.4%.

The expanding economic activity has started to have an impact on the commercial vehicle segment.

“Surprisingly, sales of trucks and buses picked up during the month,” Sen said. “May be some economic activity has started or customers have started to advance their purchase decisions before BS IV emission norms gets compulsory for all commercial vehicles from 1 April.”

Sales of medium and heavy commercial vehicles rose 17% to 25,934 units during the month, while those of light commercial vehicles grew 8.84% to 39,635 units.

“Medium and heavy commercial vehicles reflected positive growth in October with the expectation of secondary sales picking up pace in the next few months due to increase in freight demand,” according to Abdul Majeed, partner and national auto practice leader at PricewaterhouseCoopers.

“Customers might hold back on buying vehicle in the coming months till the tax structure under GST (goods and services tax) becomes clearer,” Majeed said.

“Like in other countries, there is hope that better incentives will be offered under GST for fuel efficient and environment-friendly alternative fuel vehicles, going forward, which is absolutely essential to promote sustainable transport,” he said.

GST will subsume a host of indirect taxes levied by the centre and states including service tax, excise duty, value added tax, entertainment tax and entry tax.

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