Home / Industry / Manufacturing /  Tepid Diwali for auto makers on higher oil, interest rates, inflation

Mumbai: It was another dull Diwali for auto makers this year as an erratic monsoon, higher fuel prices, interest rates, inflation and insurance costs held back buyers, according to close to 20 dealers across the country.

Retail sales failed to bring down inventory at dealerships to normal levels of 20-25 days, though dispatches have been slow for the past four months.

Inventory levels for passenger vehicles (cars and utility vehicles) are at 35-40 days post Diwali, compared with 45-50 days a month ago, while for two-wheelers, dealers have adequate stock for 50 days, from 60 days earlier, said Saharsh Damani, chief executive officer of the Federation of Automobile Dealers Association (FADA), the apex body of dealers across the country.

Accordingly, auto firms may now have to reduce inventory substantially in the months ahead as the festive season, which began with Onam in September this year and concluded with Dhanteras, the first day of Diwali, on 6 November, failed to lift consumer sentiment substantially.

Dhanteras is one of the most important days in the festival calendar for auto makers, consumer durables companies and real estate firms, as the day is considered auspicious for big-ticket purchases. Damani estimates a 12-15% fall in retail sales of two-wheelers this festive season, while the figure is expected to be flat for passenger vehicles.

Last year, buyers held back purchases because of uncertainty over the goods and service tax (GST) regime, which was implemented on 1 July 2017.

A rise of close to 8% and 22%, respectively, for the year-to-date in petrol and diesel prices in Mumbai kept buyers away, while devastating floods in Kerala also resulted in a sharp drop in sales during Onam. 

After two successive rate hikes in June and August, the Reserve Bank of India’s (RBI) monetary policy committee (MPC) kept key policy rates unchanged in early October, citing a benign inflation trajectory and downward revision to inflation projections, though the stance changed to “calibrated tightening" from “neutral". However, the policy indicates uncertain times for consumer finance because banks are likely to align them with the RBI’s two previous interest rate increases, which would push up borrowers’ equated monthly installment (EMI) payments.

Since 1 September, on-road prices of cars are  up by almost 25,000 following a Supreme Court order on 20 July that asked insurers to offer long-term third-party insurance cover instead of an annual cover. Additionally, a fall of close to 10% in the benchmark index Sensex from a lifetime high of 38,896.63 points on 28 August this year is also “a big dampener", Damani said.

“Enquiries have reduced by about 15% compared with Dhanteras last year as consumers are concerned about uncertain fuel prices and higher interest rates. We are expecting the year to end in a subdued manner despite new launches," said a multi-brand dealer in western Mumbai, adding that about 40% of car buyers take loans. Hetal Gandhi, director of the research division at credit rating agency Crisil Ltd, expects the festive season this year to be muted, showing a “flat to marginally positive growth" because of “sub-par retail sentiments", despite automakers pushing sales through higher discounts on popular models. Gandhi estimated the festive season to account for about a fifth of total sales during a fiscal and said the industry would clock 9-11% growth this fiscal with a downward bias. Even though the kharif output has risen this fiscal, farm profitability remains a key monitorable over the coming months, Gandhi said, adding that it could “meaningfully" impact rural sentiments. She expects sales of motorcycles and scooters to grow by 8-10% and 7-9%, respectively, this fiscal. For the first half this year, motorcycles were growing more than 15% owing to higher rural incomes and expectations of a good monsoon.

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