Home >Industry >Manufacturing >Auto sales enter slow lane in November as cash crunch hits India

Mumbai: Auto shipments to dealers in November fell sharply from the previous month as buyers developed cold feet in the aftermath of the ban on old Rs1,000 and Rs500 notes, which triggered a cash crunch.

Car makers in India report dispatches to dealers and not end users. Analysts expect dispatches to decline further in the coming months as auto makers seek to match supply with slowing demand.

Mahindra & Mahindra, India’s top maker of sport utility vehicles, had domestic sales of 29,814 in November, down 38.8% from October and 24.3% year on year. Domestic sales at Tata Motors, India’s biggest auto maker by revenue, fell 28.4% month on month to 33,274 vehicles. TVS Motor Co. reported sales of two-wheelers last month dropped 27.9% from October. Other auto makers also reported double-digit percentage declines from October’s sales.

Maruti Suzuki India Ltd’s dispatches rose to 126,325 units from 123,764 units in October. That marked a 14.2% rise from a year ago. Consignments of entry-level models such as Alto and Wagon R increased 8% year-on-year while those of compact car models rose 10%. Unit sales were propped up by a strong growth in utility vehicle sales, which rose 98.1% to 17,215 units.

The 8 November demonetization, which took out 86% of the currency in circulation by value, introduced uncertainty in the market at a time when Mahindra had expected a sales boost from a normal monsoon and softer interest rates, president and chief executive Pravin N. Shah said.

“While it’s a good and welcome step in the mid to long term, this has dampened overall sentiments, leading to postponed buying, thereby resulting in a major drop in volumes in November," Shah said.

Three weeks after the government decided to scrap high-value notes in a crackdown on black money, cash shortages persist across the country and long queues of people are still visible at bank branches and ATMs.

“People have been postponing the purchase and delaying taking the delivery of their vehicles due to the cash crunch," said a two-wheeler dealer, adding that November sales for his dealership had been the lowest since 2005.

In a note on the impact of demonetization on auto sales, IIFL Institutional Equities Research said extensive checks across 40 auto dealers reveal that retail sales are down 30-60% across segments in the first three weeks since demonetization.

It said there has been no material improvement in demand over the course of these three weeks, during which sales of sport utility vehicles had borne the brunt, with retail sales almost halving. Sales of two wheelers, tractors and commercial vehicles are down 30-50% and car sales down 15-25%, it said. “There is risk to our growth forecasts across segments," said IIFL. The firm has cut its earnings per share estimate for the auto sector by up to 8%.

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