Most states witness a fall in Auto sales in May

Dnyanada Kulkarni
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Most states witness a fall in Auto sales in May

The sales volumes of automobiles showcased a declining trend across most states of India in the month of May. Merely eight states witnessed YoY growth in vehicle registrations on a lower base. Of these, five states are located in the north-eastern regions of India.

The statistics in May mark the second consecutive month of decline in retail sales in FY20. Subdued demand in the states of Uttar Pradesh, Maharashtra and Tamil Nadu were primarily responsible for this decline. Of the five states that contribute the most to vehicle sales, Uttar Pradesh exhibited the highest decline of 20 per cent YoY in vehicle registrations.

Contrarily, Arunachal Pradesh recorded the highest YoY growth in vehicle registrations at 31 per cent. Meanwhile, Chhattisgarh, Jammu & Kashmir and Rajasthan also posted higher sales in all vehicle categories.

In contrast, Jharkhand, Odisha and West Bengal experienced a decline in vehicle registrations across all categories in comparison to last year’s numbers.

To gauge the level of sales, vehicle registrations is a widely accepted measure. Twenty-two of the total 30 states and union territories in India witnessed a fall in vehicle registrations in May, as reported by the Federation of Automobile Dealers Associations. The state-wise statistics were revealed by the dealer’s lobby for the first time to ensure transparency.

Since September 2018, volumes have either demonstrated a slowdown in the pace of growth or have declined. This is mainly attributable to higher insurance costs which are required to be paid upfront as well as the rising prices of vehicles. The discounts offered were not enough to entice buyers, thereby resulting in an accumulation of inventory.

Furthermore, automobile manufacturers imposed production cuts as they feared the repercussions of an economic slowdown and a liquidity crunch. The uncertainty associated with the elections dampened sales volumes in April and May. Moreover, the liquidity concerns associated with NBFCs also affected the demand sentiment.

The category that witnessed the maximum decline in registrations of 9 per cent YoY is the two-wheeler segment. Even three of the largest two-wheeler markets in India, namely: Uttar Pradesh, Maharashtra and Tamil Nadu saw a fall of 22 per cent, 6.7 per cent and 14 per cent, respectively.

In May, the passenger vehicle sales in India fell 20.55 per cent YoY to 2,39,347 units – the most abrupt drop in practically 18 years, according to data released by the Society of Indian Automobile Manufacturers (SIAM).The states of Chhattisgarh and Maharashtra showcased a YoY growth in passenger vehicle registration. However, the state that performed the worst was Manipur which reported de-growth of 25 per cent. Jharkhand experienced a 45 per cent YoY fall in the registrations of commercial vehicles such as trucks.

Overall, India’s automobile sector is living through the worst-ever slowdown. The economic slump and decline in the country’s GDP to 6.8 per cent in FY19 from 7.2 per cent in FY18 has resulted in a muted sentiment in terms of consumer spending.

To make matters worse, most automakers are struggling to comply with the new policies introduced by the government, which includes a blanket ban on polluting petrol and diesel vehicles. This has compelled automakers to discontinue old models and launch new ones that comply with the BS-6 emission standards. This will force players such as Maruti Suzuki to eliminate diesel cars from their portfolio next year. The government think tank Niti Aayog has suggested that only electric vehicles should be sold in the country after 2030.

Mahindra Vehicle Manufacturers, an arm of M&M, notified the exchange on June 8 that it would observe no production days ranging between 5 to 13 days in Q1FY20, in order to align its production with sales requirements. Maruti Suzuki, the leader in the automobile sector, is also shutting down its plants between June 23 and June 30 to ease the burden on piling inventories.

Most top lenders have lowered their exposure to automobile dealers due to the increasing number of defaults over the last couple of years. This is delaying the recovery in the auto sector as dealers are grappling on two major fronts – weak demand and a crunch in funding. The burgeoning bad debts in the auto sector have compelled leading retail banks to demand higher collateral for inventory funding. Sometimes, they even demand collateral as high as 100 per cent of the loan sanctioned.

Banks have ceased to accept letters of comfort from original equipment manufacturers (OEMs) that used to suffice for granting credit until recently. Stressed balance sheets have already triggered the closing down of showrooms in some parts of India.

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