Auto sales feel demonetisation jitters, fall to 16-year low in December

Auto sales in December declined 18.61%, the most since December 2000, when they fell 21.81%, according to data from industry body Siam


Car sales in December declined 8.14%, the most since April 2015, when they dropped 10.15%. Two-wheelers were worse hit by the cash crunch. Photo: Pradeep Gaur/Mint
Car sales in December declined 8.14%, the most since April 2015, when they dropped 10.15%. Two-wheelers were worse hit by the cash crunch. Photo: Pradeep Gaur/Mint

New Delhi: Sales of automobiles, a measure of consumer demand in the economy, declined across segments in December as customers unnerved by a cash crunch after the scrapping of high-value banknotes the previous month put off purchases.

Across segments, sales declined 18.66%, the most since December 2000, when they fell 21.81%, according to data from the Society of Indian Automobile Manufacturers (Siam).

Sales of two-wheelers and three-wheelers, which are mostly paid for in cash, posted the sharpest decline in monthly sales in some 18 years. Their sales declined 22.04% and 36.23%, respectively.

Car sales declined 8.14% in December, the most since April 2015, when they dropped 10.15%. The decline in car sales means that the Indian passenger vehicle industry is unlikely to post double-digit growth for yet another financial year. Siam had expected sales to grow 12% in the year to March. Between April and December, sales increased 8.59% year on year.

Siam said the impact of demonetization of Rs1,000 and Rs500 notes is temporary.

“Demonetization has had its impact on the industry although we feel it is a temporary phase,” said Vishnu Mathur, director general of the industry lobby group.

India’s strong economic fundamentals would help a rebound in consumer demand, added Mathur.

To be sure, the numbers are wholesale figures—company dispatches to dealerships—and not sales to end-users. Yet, dealers, too, have been desperate to clear inventory they built up in the festive season that ended with Diwali on 30 October.

Customers are reluctant to buy. Jaspreet Singh, a small businessman in Ramgarh, Rajasthan, wanted to expand his transport fleet to three vehicles by buying a pick-up.

To buy the Rs15 lakh vehicle with a loan, he would have to make a down payment of at least Rs1.5 lakh, which he does not want to spend now. How long will he wait? Until he has enough money, Singh replied. He doesn’t know when that will be.

Mint spoke with at least six dealers from across the country who said two-wheeler sales could have dropped by up to 40% and car sales by 15-20% in the two months since demonetization was announced.

India’s largest car maker Maruti Suzuki India Ltd was the only auto company that recovered quickly from the note ban.

Companies with costlier products on offer found it more difficult to attract customers, indicating that people were hesitant to make big-ticket purchases.

Some dealers said such a sharp fall in demand had not been witnessed in more than a decade. “There is no money in the market. (Sales are) almost 40% down in retail. We used to sell 350 vehicles but we have sold less than 250 vehicles in December,” said an East India-based dealer of Mahindra & Mahindra Ltd who didn’t want to be named.

The drop in auto sales is an indication that the move to scrap old high-denomination notes, which invalidated 86% of the currency in circulation by value, will have at least a short-term impact on growth in Asia’s third-largest economy.

A Rajasthan-based dealer of India’s largest two-wheeler company, Hero MotoCorp Ltd, said sales have been very slow in rural areas. “Retail sales of two-wheelers are down anywhere between 30-40%. That is also because of inventory clearance. Things won’t improve until money reaches the bottom of the pyramid,” the dealer said.

According to Anil Sharma, principal analyst at IHS Automotive, a forecasting firm, calendar year figures are “terrible”. “Demonetization is hurting auto sales. But there is a ray of hope as we see increasing pressure on banks to reduce interest rates and they have also come up with unique financing schemes. That may help,” Sharma said, predicting a “very slow recovery”.

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