BQ Survey | Discounts Bump Up Auto Sales Near September-End

Automakers, including Maruti Suzuki (India) Ltd., announced discounts ranging between Rs 5,000 and Rs 1 lakh on some of its cars, nearly a week after the government reduced corporate tax rates to spur economic growth from a six-year low.

“There were a lot of customers who were awaiting clarity on the GST Council’s decision (on reducing the indirect tax on automobiles) at the start of the month who are now making final purchase decisions,” Vinkesh Gulati, director, United Automobiles—a dealer for Mahindra and Mahindra Ltd.—told BloombergQuint. “OEMs (original equipment makers) have been giving a lot of attractive offers and discounts to customers and over the last few days and there has been a significant bump in queries as well as showroom footfalls.”

Nikunj Sanghi, managing director at JS Fourwheel Motors Pvt. Ltd., a dealer for Hero MotoCorp Ltd., agreed. “Things have definitely improved quite a bit over the previous month. The festive season has started on a positive note with Onam (in Kerala) and Ganesh Chaturthi (in west India),” Sanghi said. “However, last year dealers had stocked up their inventories ahead of the festive season and that’s why we will see negative growth (year-on-year) on a high base.”

A tiny bump in retail sales can’t be called a sign of recovery yet as the automobile sector is in the midst of its worst slump in over two decades, reflecting a broader slowdown in the Indian economy. More so when BloombergQuint’s poll of brokerages suggests that factory-gate sales will continue to fall in September despite companies slashing prices after surprise tax cuts.

Wholesales Volumes Likely To Fall

Wholesales generally pick up in September as dealers stock up ahead of the festive season. Despite the higher discounts and rising footfalls in showrooms, the situation isn’t expected to improve over last year, according to BloombergQuint’s separate poll with four brokerages.

Nomura expects sales of cars and passenger vehicles to decline 20 percent over last year in September.

“For the medium and heavy commercial vehicle space despite discounts running at all-time high levels and higher depreciation benefit there has been no big uptick in retail sales,” Kapil Singh, automobile analyst at Nomura, said in a recent report. The brokerage expects sales of vehicles in the category to decline by nearly half year-on-year in September on the back of weak demand.

Raghunandhan NL, automobile analyst at Emkay Global, said auto sales would remain weak in September. “Volume performance is expected to remain weak across commercial vehicle, passenger vehicle and two-wheeler segments due to the high-base effect, weak consumer sentiment and financing issues.”