(Mint)
(Mint)

Retail auto sales in February decline 8%, the sharpest fall this fiscal

  • Subdued demand, high inventory,  new truck axle rules,  NBFC crisis among reasons for continuous drop
  • While sales of passenger vehicles fell 8.25% year-on-year to 215,276 units in February, two-wheeler sales fell 7.97% to 1,125,405 units

New Delhi: The discounts-driven sales recovery of December and January turned out to be a flash in the pan, data from auto dealers showed, as sales in February fell at the sharpest pace in the fiscal year.

According to sales data released by the Federation of Automobile Dealers Association (FADA), overall vehicle sales during the month fell 8.06% from a year ago to 1,452,078 units. As customers stayed away, stocks with dealers swelled to levels seen after festival season ended in November.

While sales of passenger vehicles fell 8.25% year-on-year to 215,276 units in February, two-wheeler sales fell 7.97% to 1,125,405 units. The overall crisis in the farm sector and increase in insurance costs depressed two-wheeler sales. Makers of passenger vehicles reduced production somewhat to match retail demand.

Showroom sales picked up in December and January as manufacturers offered huge discounts to push out vehicles left unsold from the festival season.

Manufacturers, however, did not seem to have foreseen the coming drop, and did not reduce production sufficiently.

Wholesale passenger vehicle dispatch data for February released by Society of Indian Automobile Manufacturers, showed a decrease of only 1.1% from a year earlier to 272,284 units while the same for two-wheelers was down 4.22% to 1.62 million units.

According to Ashish Harsharaj Kale, president of FADA, the inventory of vehicles across segments with dealers is as high as it was after the festive months, and even higher for two-wheelers.

“None of us expected sales to fall this much since there were some signs of recovery in January. The manufacturers also did not reduce production as vehicle sales failed to pick up. Unless there is some kind of revival post-elections or repo rate reduction by the Reserve Bank of India or monsoon remains good, it will be difficult for the industry to come back to the path of growth," added Kale.

Retail sales of commercial vehicle also fell by 7% to 61,134 units in February because of new truck axle rules and the crisis at non-banking financial companies.

According to FADA, stocks of passenger vehicles are back to 50-60 days, while that for two-wheelers is 80-90 days.

Stocks of commercial vehicles have remained around 45-50 days. “FADA has been highlighting the high level of inventory amongst the two-wheeler dealers and would like to express serious concern that it has now reached alarming proportions and in some states have breached the unheard level of 100 days of stock as per today’s retail situation," the association said in a press statement.

“Navigating smoothly out of the current slowdown is the need and the entire auto ecosystem, including dealers will have to be in a cost regulation mode, till the industry returns to vibrancy. February turned out to be the slowest month for vehicle sales as the industry again witnessed a downward trend," added Kale.

Retail auto sales have steadily declined since August due to costlier diesel and petrol, rupee depreciation and high interest rates on vehicle loans.

The crisis at Infrastructure Leasing and Financial Services Ltd led to a liquidity crisis among non-banking financial companies (NBFCs), affecting sales of medium and commercial vehicles. Automobile sales during the festive season in 2018 was one of the lowest in the last six years as dealers were overwhelmed with high inventory.

Following this, manufacturers rolled out large discounts to reduce the inventory, in the process affecting their financials.

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