Entry-level vehicles’ share in PV sales hits record low

In the second quarter of the ongoing fiscal, small cars less than 3.6 meters in length declined to 35,000 units, a drastic 54.5% decline from 77,000 units sold in the same quarter last year. This, even as utility vehicles (consisting of both SUVs and MUVs (multi-utility vehicles) continued to witness an upswing, contributing to 60% of all passenger vehicle sales in the September quarter. This trend also points to an uneven income recovery at the bottom of the pyramid in the aftermath of the Covid-19 pandemic.

Compared to the 2018-19 peak, small cars in Q2FY24 were 75% lower, data released by apex automotive industry body Society of Indian Automobile Manufacturers (SIAM) on Monday showed. SIAM counts a factory-gate dispatch reported by automakers as a sale.

Sales of entry-level motorcycles in the 110cc and below segment also hit their lowest level at 1,414,000 units, a 39% drop from the second quarter of fiscal year 2018-19 when sales of these motorcycles peaked at 2,305,000 units. 

The continuous downslide in these large automotive segments which represent a vast majority of the Indian consumer seeking upward social mobility shows that the pick-up in rural demand has failed to address the stress in the two-wheeler segment, sales of which, including entry motorcycles and scooters, also dropped by a marginal 1.6% in Q2FY24 at 4,598,000 units compared to the same quarter last year. The overall two-wheeler segment continued to languish at levels seen last in 2016-17, with sales in the first half of the year still being 25% lower than peak pre-pandemic sales volumes, the data showed.

However, all categories of automobiles, including passenger vehicles, commercial vehicles, two-wheelers and three-wheelers grew on a year-on-year basis in the first half of the year, with PVs being the only segment to have a positive compounded annual growth rate (CAGR) of 3.5% over the last five years, with all the other segments still below peak pre-pandemic levels.

Domestic sales of passenger vehicles crossed the 2 million mark for the first time in the first six months of the fiscal year, a growth of 6.8%. Two-wheeler sales rose 4%, three-wheeler sales 72.5% and commercial vehicle sales nearly 2% respectively during the first half of FY24, according to SIAM.

It is worth noting that the festive season this year is spread over three months with Diwali occurring in November, compared to last year when the festival was celebrated in the month of October itself. The spread of the festival season determines how automakers plan dispatches to dealers to maximize availability at a time of high demand.

"We expect rural demand to pick up during the upcoming festive season, primarily driven by demand for entry-level two wheelers from those consumers who have till recently been deferring their purchases," said Rajesh Menon, director general, SIAM told Mint. 

Industry executives expect demand to pick up also on the back of new, aggressively-priced launches in the two-wheeler segment, particularly in the 125cc and segment below it. 

The segment is also facing disruption as electric two-wheelers gain in popularity, with legacy original equipment makers (OEMs) expanding their distribution and start-ups scaling up manufacturing as demand re-emerges after the shock of lowered FAME-II subsidies. Normal rainfall and positive rural sentiment associated with it are expected to prop up two-wheeler volumes in October and November.