BQ Survey | Auto Gloom Continues In May

While inventory levels have come down, that’s largely because of production cuts by automakers, the survey of seven dealerships across India revealed. Retail demand is yet to pick up, they said.

Sales have been falling since the Diwali festival season as higher upfront insurance costs and an increase in vehicle prices. Discounts didn’t help and inventory piled up at dealerships, prompting production cuts. The slump coincides with a decline in consumer goods volumes and a liquidity crunch, causing fears of an economic slowdown.

The weakness in auto sales was seen across categories in May, be it two-wheelers or passenger vehicles, a large auto dealer said—he didn't want to be identified out of business concerns. Increased cost of ownership due to higher insurance costs, change in emission norms and a high base of last year and liquidity issues of non-bank lenders continue to plague the industry, he said.

New launches including the latest Wagon R by Maruti Suzuki India Ltd., the XUV300 by Mahindra & Mahindra Ltd. and 125cc scooters by Hero MotoCorp Ltd. have managed to push up walk-ins and sales queries, said another dealer on condition of anonymity. But sales remain below expectations, he said.

Three brokerages polled by BloombergQuint also expect the sales volumes to fall in May. While passenger vehicle makers are expected to see a decline across companies, Hero MotoCorp and Eicher Motor Ltd.’s Royal Enfield are likely see volumes drop.

“In the two-wheelers and medium and heavy commercial vehicle segment, we expect industry volumes to decline 9 percent year-on-year," Kapil Singh, an auto analyst at Nomura said. "Passenger vehicles segment should see a sharp decline of 23 percent.”

Nomura, however, remains optimistic. With the new government in place, measures to address liquidity can lead to demand recovery in the second half of FY20, it said.

Here are expectations by segment:

Passenger Vehicles

• Maruti Suzuki's production cut, adjustment to dealer inventories likely to hit growth over the previous year.
• Lower sales of Swift, Dzire and Brezza to impact sales growth in May.

Commercial Vehicles

• Decline in sales to continue as demand remains muted.
• Idle capacity with fleet operators impacting demand.

Two-Wheelers

• TVS Motor Ltd. and Hero MotoCorp expected to report weak sales.
• Bajaj Auto Ltd. likely to outperform the industry with higher sales growth.

Tractor Segment

• Production cuts and weak demand from west India to impact M&M Tractor’s wholesales in May.