Auto industry seeks support as car sales see sharpest decline in 18 years

Pune: Passenger vehicle sales in Asia’s third biggest car market fell 20.55 per cent in May, a steepest decline in 18 years, to 2,39,347 units, as slowing economy hit automakers hard to cut production to lower inventory pile up at dealerships due to weak retail offtake.

The automakers sold a total of 3,01,238 units in May 2018, the latest data from the Society of Indian Automobile Manufacturers, or Siam, said on Tuesday.

Siam officials said they were hopeful that post-election, there would be some revival but that has not happened. In fact, this passenger vehicle sales decline was for a seventh straight month in May. Except October last year, when sales were up 1.55 per cent, vehicle sales have been in the negative in the ten months of the last 11 months. Siam officials said the dip last month was the worst since September 2001, when sales had dropped by 21.91 per cent.

All major auto segments, including two-wheelers and commercial vehicles, showed a decline in sales last month.

“Dwindling sales in passenger cars show no signs of rebounding yet due to various factors like drying up financing resources with the NBFC troubles, election related impasse, high base number and BS VI expectations in a couple of quarters,” Sridhar V, senior auto analysts and partner at Grant Thornton India LLP told Financial Chronicle.

He said many original equipment makers or OEMs have plans afoot in cutting back production to reduce the inventory piling up at dealership.

“The segment is hoping for budget to throw some encouraging news,” Sridhar pointed out.

Car sales declined 26.03 per cent to 1,47,546 units as against 1,99,479 units in May 2018. Motorcycle sales last month were also down 4.89 per cent to 11,62,373 units as against 12,22,164 units a year earlier.

Total two-wheeler sales in May declined 6.73 per cent to 17,26,206 units versus 18,50, 698 units a year ago.

Sales of commercial vehicles, a barometer of the state of economy, were down 10.02 per cent to 68,847 units in May, Siam saud.

Vehicle sales across categories registered a decline of 8.62 per cent to 20,86,358 units from 22,83,262 units in May 2018.

“The downhill drive continues in May,” Vishnu Mathur, Director General at Siam said, adding that retail sales figures were comparatively better than wholesales which showed cut production by the auto makers.

“There is an inventory correction taking place. But we have not seen such slowdown in the last 18 years,” Mathur pointed out.

“In fact, this is the time for the newly elected government to intervene and initiate steps to stimulate growth,” he said.

Mathur said the government had helped the industry recover previously in 2011-12 and 2008-9 with various policy measures, including cut in excise duty, Mathur explained.

Calling the grim automobile market as “unprecedented”, Sugato Sen, Deputy Director General at Siam said the industry has urged the government to reduce the GST on all categories of vehicles from 28 per cent to 18 per cent.

He said the government should come up with a vehicle scrappage policy. “This will help create market for new vehicles. Also, we are seeking from government to restore incentives given on research and development in the form of weighted tax deduction to previous level (200 per cent),” he said.

The automakers have been cutting production across segments in tune with the weak retail sales. In May, the cut across segments stood at a whopping 7.97 per cent.

“We are hoping that the situation may improve in the second half with pre-buy happening before the BS VI emission norm kicks in on April 1, 2020,” Mathur said, adding that every sector was down and the government should recognise that slowdown is for real.