Mumbai: Domestic passenger car sales rose by 6.05% during a volatile 2018 to over 2.55 million units on the back of a low base before July and a string of new launches after the Auto Expo in February. The trend in car sales was robust during the first half of the calendar year on the back of new launches, expectations of a healthy monsoon and a low base, but weakened since July due to factors such as the devastating floods in Kerala, unfavourable macroeconomic scenario, as well as regulatory changes and high fuel prices, which increased the cost of ownership.

The hardest blow came during the 42-day festive season, which ended with Diwali in early November, when retail sales of passenger vehicles fell 14%, according to the Federation of Automobile Dealers Association, which attributed the dip in sales primarily to the liquidity crunch faced by financiers.

The festive season is crucial for auto makers as buyers consider it auspicious to make big-ticket purchases such as cars, gold and real estate. About 30% of annual car sales happen during this period.

In December, the country’s top six carmakers—Maruti Suzuki India Ltd, Hyundai Motor India Ltd, Tata Motors Ltd, Mahindra and Mahindra Ltd, Toyota Kirloskar Motor Pvt. Ltd and Honda Cars India Ltd—sold a total of 200,367 vehicles, compared with 200,456 units a year earlier.

ALSO READ | Auto sales in December: How carmakers fared

Automakers consider factory dispatches to dealerships as sales.

December was also a challenging month since a slight recovery in demand owing to the reduction in fuel prices to almost a year’s low failed to offset negative factors such as high interest rates and insurance premiums, besides tight liquidity conditions, carmakers said on Tuesday.

However, analysts expect inventory levels at dealerships to normalize this month onwards on the back of higher discounts and new launches.

Based on these factors, inventory levels were expected to come down to two to three weeks by December-end, compared with four to five weeks at the end of November, said analysts at Motilal Oswal Securities Ltd in a 31 December note.

Maruti Suzuki, India’s largest carmaker, posted a 2.97% drop in domestic car sales last month to 103,954 units, from 107,140 units a year earlier. Maruti’s sales have fallen in five of the past six months. The figures exclude sales of the Omni and Eeco vans, and light commercial vehicle, Super Carry.

The local unit of South Korea’s Hyundai Motor Co. reported a 4.82% rise in sales in December to 42,093 units. Vikas Jain, the company’s national sales head, said the launch of the new Santro small car, and continued demand for other models reflected in the company’s overall performance.

Mahindra reported a 2.91% drop in local passenger vehicle sales in December to 15,091 units, compared with 15,543 units a year ago. Rajan Wadhera, president of Mahindra’s automotive sector, attributed the decline in sales to “tight liquidity conditions and low buying sentiment." Wadhera hopes that higher rural demand owing to the harvesting season and the launch of the XUV300 compact SUV will aid M&M’s performance in the quarter ending March 2019.

Analysts expect car sales in the current fiscal to grow 7-8%, a downward revision from the double-digit growth estimates at the beginning of the year. Analysts expect a rise in consumer sentiment on the back of new launches in the run-up to the implementation of the Bharat Stage VI (BS-VI) emission norms, but are cautious for a tough start to the year. “2019 could see a faster phase-out of BS-IV vehicles and earlier introduction of BS-VI vehicles, thereby keeping up the pace of new introductions, which have always shown an increase in buyers’ interest," said Sridhar V., partner, Grant Thornton.

“The initial part of the calendar year may see some challenges and settle down for an improved performance post the elections."

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