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Mint Primer: Why passenger cars may move into the slow lane soon
Summary
- After three consecutive years of robust sales, automakers anticipate a brake
Top industry officials of the $120-billion domestic automotive industry met in New Delhi last week to brainstorm over what could be in store next year. They expect a slowdown in the growth of passenger vehicles. Mint finds out why:
How has the industry done since covid?
After two years of deep decline, in calendar years 2019 and 2020, the domestic passenger vehicle segment rebounded sharply in 2021 and 2022 to grow 13% and 27% respectively—the quickest segment to reach pre-covid sales levels. In calendar year 2023, the growth momentum continued, albeit at a slow pace, with volumes topping 4 million units in a year for the first time. For fiscal 2024, which ends on 31 March, the industry is tipped to log sales of 4.18 million, up 7.5% over FY23. The growth has been led largely by SUVs that have overtaken compact cars to become the largest segment in the industry.
What is the forecast for the future?
After three years of high growth, sales growth is expected to take a breather. For fiscal 2025, industry body Society of Indian Automobile Manufacturers (SIAM) is projecting a 3-4% growth. This will be the slowest annual growth since the pandemic but in line with the historical longer-term growth of the automotive industry. Between fiscal years 2018 and 2023, the industry grew at a compounded annual growth rate of 4.2% while over the last 10 years since fiscal 2014, it has grown by 5.3%. After three years of robust growth led partly by pent up demand from the pandemic, a breather of a year on a high base is on the cards.
Do elections have a role to play in car sales?z
Though there is no direct correlation, in the last decade sales did cool off in an election year as buyers put off pricey purchases. In 2019, sales declined by 13% and in 2014, they grew only 3% on a lower base—sales had dropped by 7% in 2013. In the previous two election years, however, growth was strong at 17% and 25% in 2009 and 2004 respectively.
What are the reasons for the slowdown?
Signs of a slowdown have been visible since the end of the festive season with the gradual build-up of inventory in dealerships—55-58 days now from 35 days at the start of the year. Pent up demand from the consumers replacing older cars is waning. While SUVs will continue to drive growth in the future—expected to make up 55% of all vehicles in FY25—a decline in small car and sedan sales will temper overall growth of the industry. Some part of SUV sales is cannibalizing other segments and not really expanding the market.
How are the other segments doing?
Commercial vehicle was next in line to hitting pre-pandemic levels and growth in this segment is likely to be moderate. On the other hand, two wheelers that are yet to reach pre-pandemic levels are likely to grow faster and could even log double digit growth in FY25. Electric car sales are expected to miss the 100,000-unit mark in FY24. But electrification is driving three-wheeler sales, with the segment expected to end FY24 with 40% growth and tipped to follow up with another double-digit growth in FY25.
