The Indian automobile industry continues to remain under stress in January ‘20 owing to persistent weak buying sentiments

The Indian automobile industry has witnessed a worst ever slowdown in a decade - starting in the second half of last fiscal year. The industry continues to remain in negative zone across all segments stipulating weak buying sentiments among consumers mostly on account of high cost of ownership. This is followed by various regulatory changes from the government in a short span of time.

 In January ‘20, total vehicle dispatched domestically by the OEMs stood at 1.73 million units compared to 2.01 million units same period last year recording a 13.8% y-o-y decline. The medium & heavy commercial vehicle segment (M&HCVs) has witnessed the worst decline of 34.6% y-o-y to 22,534 units dragging down the overall domestic CV sales to 75,289 units registering a 14.0% y-o-y decline majorly affected by slowdown in the economy of the country. In FY20 YTD, a total of 0.64 million CVs has been dispatched registering a massive decline of ~20.3% y-o-y compared to 0.81 million units in the same period last year.

The overall domestic passenger vehicle dispatched stood at 0.26 million units in January ‘20 reflecting 6.2% y-o-y decline compared to previous year where passenger cars and vans growth remain weak on back of weak demand. On the other hand, the utility vehicle (UVs) segment continues to show positive momentum with a growth of 2.6% y-o-y to 84,929 units compared to previous year majorly driven by new launches in the segment. The 3W segment remained positive with a growth of 12.7% y-o-y to 60,903 units compared to 54,043 units in the previous year. However, the major setback was seen in the 2W segment where the total domestic sales declined a massive 16.1% y-o-y to 1.34 million units compared to 1.59 million units in the previous year. Both scooter and motorcycles segments saw a double digit decline of 16.2% and 15.2% y-o-y respectively reflecting weak demand in both rural and urban areas along with the ongoing stress in the industry.

Retail Sales: Primary Focus on BS IV Inventory Clearing

On the similar note, retail sales has also been continuously declining for past 12 months excluding August 2019, January ‘20 was no exception. Despite high discounts provided by various dealers across the country to clear BSIV inventory before transition to BSVI, the weak buying sentiments of consumers continues to haunt the retailers.

The retail sales has witnessed decline in the starting month of the year across all segments with an exception in 3- wheelers which saw a growth of 9.2% y-o-y to 63,514 units compared to same month previous year. However, overall retail sales saw a decline of 7.5% y-o-y to 1.7 million units compared to 1.8 million units same period last year. The commercial vehicle segment has witnessed a decline of 6.9% y-o-y to 82,187 units owing to slowdown in the overall economy of the country leading to weak fleet movements affecting various fleet operators. The passenger vehicle segment also saw a decline in retail sales of 4.6% y-o-y to 0.29 million units compared to 0.30 million units same period last year on account of high cost of ownership. Furthermore, the major setback has been seen in the 2-wheeler segment witnessing a decline of 8.8% y-o-y to 1.2 million units compared to 1.3 million units in January 19.

On the other hand, the push towards lowering down the inventory levels by OEMs and dealers, the retail sales in segments like passenger vehicles, commercial vehicles and 3-wheelers has witnessed growth compared to the units dispatched from OEMs. Commercial vehicles, passenger vehicle and 3-wheelers saw growth of 9.2%, 10.7% and 4.3% respectively compared to wholesales excluding 2-wheeler segment which saw a decline of 5.5%. Also, the impact can be witnessed in the inventory levels which has dropped to 15-20 days in PV segment and 25-30 days in 2-wheeler, 3-wheeler and commercial vehicle segments respectively.

Going forward, the overall domestic automobile industry is expected to witness a double digit decline for the first time in last fifteen years in FY20 across all segments. Acuité believes that the Indian automobile industry will continue to remain under stress till the first half of next financial year given the high cost of ownership for consumers due to hike in vehicle prices across various segments by OEMs with respect to BS-VI transition, safety norms and subdued economic growth of the country.