Car Sales Decline For The First Time In A Decade

Domestic passenger car sales volumes declined by 6.7% in FY13, the first decline the industry has seen since 2002-03, said SIAM (Society of Indian Automobile Manufacturers). The situation has been bad for the automobile industry since the beginning of FY13 and has only worsened in the last few months. Passenger cars saw a decline in volumes in March 2013 to the extent of 22.50%, which marks the fifth consecutive month of decline, which is alarming indeed.

The industry body had revised its forecast for sales volume growth in FY13 to 0-1%, after a series of downward revisions throughout the year. However, no growth also proved to be an ambitious target. Automobile manufacturers have been trying to push sales since the beginning of the festive season by offering heavy discounts, buy now-pay later schemes and other offers and freebies. However, the industry has seen no improvement regardless of these extensive efforts.

Commercial Vehicles too have been well-caught in this growth resistance. Sales for FY13 witnessed a decline of 2% over FY12. This decline is moderate because of the outperformance of the LCV (Light Commercial Vehicles) segment. Sales of Medium and Heavy Commercial Vehicles have been consistent in facing the heat of decreased industrial output and mining and construction activity, apart from the high interest rates and soaring fuel prices that have affected the industry as a whole.

Two-wheelers for long were witnessing a slowdown but not to the extent of other segments. However, the outlook for this industry too has turned bleak. In March 2013, two-wheeler sales stood 7% lower at 11 lakh units as compared to March 2012. On the same lines, motorcycle sales declined by 8.30% to 7,79,878 in March 2013, on a yearly basis. However, since the decline started to aggravate in the later months of FY13, the cumulative FY13 sales saw a flattish growth as compared to FY12.

Since there is no significant improvement in factors that caused the slowdown, the trend is likely to continue in the short-run. However, we have seen a couple of interest rate cuts that may ease the situation a little. SIAM expects domestic passenger car sales to grow by 3-5% in FY14. At the same time, CV sales and motorcycle sales are forecasted to grow at 7-9% and 6-8% respectively. We expect the downward trend to continue for a while and the sentiment of the industry to improve by the second half of FY14.