NEW DELHI : India’s passenger vehicle industry suffered its worst-ever monthly sales performance in August as a protracted demand slowdown showed no sign of abating.

Companies did not step up production of vehicles fearing sales will continue to stay weak during the crucial festive season, which begins this month and continues till late October. Car sales in India are measured as factory dispatches and not retail sales.

Domestic sales of passenger vehicles plunged 31.6% in August to 196,524 units from a year earlier, according to data released by the Society of Indian Automobile Manufacturers (Siam) on Monday. It was the 10th straight decline in domestic passenger vehicle sales and the worst since Siam began compiling monthly sales data in 1997-98.

Sales of passenger cars declined 41% to 115,957 units amid a continued shift in demand towards compact and midsize sport utility vehicles.

Utility vehicle sales fell, albeit at a much slower rate of 2% in the past month to 71,478 units because of the introduction of products by Hyundai Motor India Ltd, Renault India Pvt. Ltd, Kia Motors India Ltd, Mahindra and Mahindra Ltd and MG Motor India Pvt. Ltd. Hyundai’s Venue, Renault Triber, MG Motor’s Hector, Kia Motors’ Seltos and Mahindra’s XUV300 have been witnessing robust demand skirting the overall weak industry trend.

Ashish Modani, vice president and co-head of corporate ratings at Icra Ltd, said domestic passenger vehicle dispatches fell over 30% for the second consecutive month in August due to subdued consumer sentiment and tighter financing environment.

“Deferment in purchases by consumers in anticipation of GST (goods and services tax) revision and steep discounting ahead of Bharat Stage VI rollout further dented demand," Modani said. “The government has taken various initiatives to ease liquidity crunch, though it is unlikely to provide an immediate respite to the industry."

A slowing economy, increase in ownership costs such as insurance, and uncertainty over the policy moves of the Union government are leading more people to hold off vehicle purchases.

Union minister for road transport and highways Nitin Gadkari assured automobile executives last Thursday that there was no plan to ban vehicles that run on either petrol or diesel, assuaging concerns of companies on the road ahead for conventional fossil fuel vehicles. He also said the government would consider reducing taxes on hybrid vehicles to spur sales.

Automakers have already cut thousands of temporary jobs and warned the government of more job cuts if it does not intervene through a reduction in GST from 28% to 18%. The current slowdown has led several companies to freeze their investment plans towards either building new factories or expanding existing facilities.

Overall automobile sales across categories fell 23.6% in August to 1.82 million units, as automakers avoided adding to dealership stocks, worried about a weak festival season. All segments barring three-wheelers witnessed a decline in sales that exceeded 10%.

Dispatches were also reduced expecting that customers would defer their purchases till the GST Council meeting on 20 September, in anticipation of a cut in the GST rate on vehicles.

In the commercial vehicle segment, increased cost of ownership, lack of freight availability and increase in freight carrying capacity because of revised truck axle norms continue to adversely impact sales.

Sales of medium and heavy commercial vehicles—a barometer of economic growth—declined 54% to 15,573 vehicles. Light commercial vehicles also declined by 28% year-on-year to 36,324 units.

Due to the overall slowdown in consumption demand and weak economic activity, India reported the slowest-ever expansion of gross domestic product at 5% during the April-June quarter. This was the sixth consecutive quarter in which the Indian economy shrank. The Reserve Bank of India also revised the expected growth in the size of the economy to 6.9% in FY20 from 7% projected earlier.

As consumption demand in rural markets crashed during the first quarter of the fiscal due to increased cost of insurance, decline in farm income and flood situation in different parts of the country, sales of motorcycles and scooters fell during the month.

Sales of two-wheelers declined 22% to 1.51 million units in August from a year ago. Motorcycle sales fell 22% to 937,486 units, while scooters also posted a 22% drop in sales to 520,898 units.