NEW DELHI : Retail sales of automobiles across India declined 5.4% year-on-year in June to 1.64 million units, according to data released by the Federation of Automobile Dealers Associations (FADA) on Tuesday.

This comes against the backdrop of consumer sentiment continuing to remain subdued because of the overall slowdown in the economy and tightening of credit norms by banks.

Retail sales of automobiles across segments started to decline in the second half of FY19, as banks and non-banking financial companies (NBFCs) became over cautious before extending credit to dealers who rely on these institutions for short-term loans to meet their operational expenses. Rising bad loans from the automobile sector, mostly because of the shutdown of dealerships, prompted banks, such as the State Bank of India and HDFC Bank, to reduce their exposure towards inventory funding of automobile dealers.

The situation further worsened as demand in the rural market nosedived because of falling farm income and lack of financing options from NBFCs. The slowdown in manufacturing and infrastructure building activity in the run-up to the elections also impacted the sale of commercial vehicles. Ashok Leyland Ltd, the country’s second-largest commercial vehicle manufacturer, said on Monday that it will stop production in its Pantnagar manufacturing plant for nine days to balance its wholesale inventory with retail demand.

Maruti Suzuki India Ltd has also resorted to a double-digit production cut in its manufacturing capacities for five consecutive months to control its dealer inventory.

Wholesale sales of passenger vehicles in the April-June quarter witnessed the sharpest year-on-year decline of almost 18%, since the 23% year-on-year fall in the third quarter of FY01.

In June, passenger vehicle manufacturers, in anticipation of continued decline in demand, reduced dispatches by double digits in every segment. Showroom sales of passenger vehicles declined 4.6% year-on-year to 224,755 units.

Wholesale sales in the passenger vehicle segment declined sharply by 17.54% to 225,732 units led by 24% fall in passenger car sales to 139,628 units and utility vehicles by 0.9% to 72,917 units, according to data released on 10 July by the Society of Indian Automobile Manufacturers (SIAM).

Retail sales of commercial vehicles declined 19.3% to 48,752 units, indicating an overall slowdown in economic activity. One reason, however, was a revision in truck axle load norms. Lack of financing options from NBFCs continued to exacerbate the situation for owners of truck fleets. Retail sales of two-wheelers also declined by 5% year-on-year to 1.32 million units. This indicates subdued demand in the rural market because of a fall in farm income and increase in the cost of ownership, as a result of enhanced insurance cost.

During the first quarter of the current financial year, sales of automobiles from showrooms declined by 6% to 5.12 million units. Retail sales of passenger vehicles declined by just 1%, but commercial vehicle sales fell sharply by 14%. Two-wheeler sales declined by 6.4%. Inventory of passenger vehicles with dealers dropped from 35-40 days in May to 30-35 days in June as manufacturers cut production.

For two-wheelers, however, it has increased from 55-60 days to 60-65 days during the same period as manufacturers pushed more vehicles compared to retail demand, which fell below their expectations. This also led to the inventory of commercial vehicles with dealers rising from 45-50 days in May to 55-60 days in June.

Liquidity continues to be a worry, both on the retail front as well as for dealers, according to FADA president Ashish Kale.

Normalcy in lending, which is the need of the hour, remains elusive with NBFCs and banks still in a cautious mode.

“Because of the delayed monsoon in June and its uneven spread in the first half of July, the near-term outlook of 4-6 weeks remains negative as weak consumer sentiment and tight liquidity conditions are likely to continue. Fada will once again be engaging with our policymakers with an appeal to look at the current situation and seek urgent measures to support the auto industry," he said.

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