(Bloomberg Gadfly) -- What sort of auto market could be dealt the biggest blow in 16 years by a change in rules on banknotes? Ask Indian Prime Minister Narendra Modi.
Vehicle sales in December slumped 19 percent from a year earlier to 1.2 million, their lowest level since 2010. If that sounds like an outsized impact for a class of consumer goods that are mostly not paid for upfront in Western countries -- let alone bought with hard currency -- you can take it as a salutary reminder that India's isn't like any other automotive market.
The drop was overwhelmingly driven by vehicles that are so peripheral in developed markets, they're often forgotten -- motorbikes and mopeds.
In the U.S., the 501,000 two-wheelers sold in 2015 came to about 2.9 percent of total vehicle sales. Even in China, roughly three passenger cars are sold for every two motorcycles. In India, more than seven two-wheelers were sold or exported last year for every passenger car.
So when investors think about the country's growth to become the world's third-biggest automotive market by 2020, it's worth reflecting that about 90 percent of the increase in unit sales over the past five years has come from bikes, scooters and mopeds -- an extra 5 million, compared with less than 200,000 for passenger cars.
Why should this distinction matter? The main reason is embedded in those December sales figures: Just as the wider spread of vehicle finance gives the European and U.S. automotive industries a different character to that in China, so the importance of two-wheelers gives the Indian industry unique qualities that are easily underestimated. This tripped up no less an industrialist than Ratan Tata, who created an expensive white elephant for Tata Motors Ltd. when he bet the country's middle class would trade in their two-wheelers for the low-cost Tata Nano car.
The core sales demographic is (like India itself) less affluent, more rural, and has less access to the sort of finance products that make Western automotive markets as responsive to movements in interest rates as they are to shifts in selling prices.
Emissions rules have some unusual quirks, too: While passenger cars are being brought into line with current European clean-air levels by 2020, mopeds and three-wheeled auto-rickshaws still commonly use the dirtiest two-stroke engines -- a situation that ought to be a risk factor for manufacturers if rules are ever homogenized.
So if you're looking for bellwethers for the Indian industry, it could be worth paying a little less attention to Maruti Suzuki India Ltd. and Tata Motors and a little more to their smaller-cc cousins Hero MotoCorp Ltd. and Bajaj Auto Ltd. If you're impressed by Maruti's 18 percent year-on-year jump in sales volume in the September quarter, take a look at Eicher Motors Ltd., whose sales of Royal Enfield motorcycles were 42 percent higher in December than a year earlier.
Even without two-wheeler sales, the country's rapidly growing auto market would be a force to be reckoned with. Meanwhile, though, it's a mistake to forget that in India, small is still beautiful.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.