Car, bike sales crash as cash crunch sets in

The shrinking purchasing power has badly hit the passenger vehicle industry, once touted as the fastest growing one in the world.

My expenses are not going down. Also, I don’t know if I will get a decent salary hike this year. It’s better to wait,” said the 33-year-old staffer at a prominent South Kolkata hospital. Almost 2,000 kilometers away, in Rajasthan’s Jalore, Rashid Ali has had to postpone his plan of buying a mobike due to a slowdown in his field of work. Ali provides logistics services to the numerous granite mines in the vicinity.

“Buying a mobike is the last thing on my mind now. We are just surviving,” he said.

There are numerous such stories of people either putting on hold or shelving their auto purchase plans amid slowing businesses, poor salary hike apprehensions and agrarian distress.

Tariq Malik, an assistant vice president with a leading entertainment company in Delhi, has been planning to buy a sedan for quite some time now. “My friends have suggested that it’s better to buy it after the election results on May 23. Also, I came to know that insurance costs are very high these days. So I thought I should wait until the prices go down,” said the 45-year-old who lives in Gurugram’s MayField Gardens.

Gaurav Sharma, 37, is also adopting a wait-and-watch policy in buying his first car. “I am trying to get a bank loan. Earlier financing options were easily available. I do not know why it’s taking so long now,” said Sharma, who works with a private firm in Delhi’s Okhla Industrial area.

INDUSTRY HIT HARD

The shrinking purchasing power has badly hit the passenger vehicle industry, once touted as the fastest growing one in the world. April sales are estimated to have declined by over 17% – steepest in a month since October 2011 (see graphics). It was the sixth consecutive monthly fall and ninth in the last 10 months. Passenger vehicle sales last grew marginally in October 2018. In FY 2019, sales grew by just 2.7% – slowest in five years.

“In three of the four quarters of FY 2019, we registered a 2% decline in sales in urban pockets,” said RC Bhargava, chairman, Maruti Suzuki India Ltd, which sells one of every two cars bought in the country. “Rural market was more resilient but there has been a slowdown there as well,” he said.

WORRYING NUMBERS Maruti registered a 4.6% decline in profit for the last quarter of FY 2019 despite a 1.4% increase in revenue as high discounts and unfavorable currency movement ate into its margins. Its profits for the full fiscal year also declined by 3% on a 5.4% growth in revenues. Hero MotoCorp reported a 24.5% decline in its net profit for the last quarter and an 8% dip for FY 2019.

Profits at rival TVS Motor also tanked 19% in the last quarter, though it managed to grow its profit by 1.1% for the full fiscal year.

AGRARIAN DISTRESS

Two-wheeler sales in the hinterland have declined for five straight months due to agrarian distress. In April, sales are estimated to have dropped by more than 16%. In FY 2019, sales had grown by a tepid 5% – slowest since 2015-16.

The industry endured its worst festive season – a 38-day period in autumn that typically accounts for 25% of annual sales, in five years in 2018. High crude oil prices that went up by over 45% on year in the April-October 2018 period, an increase in interest rates by 25 basis points in the first half of the last fiscal year and a change in insurance regulation that led to a hike in premium acted as major headwinds. “Most of this inventory pileup is because of a relatively poor festive season,” said Sanjay Bhan, head of sales and aftersales at Hero MotoCorp.

WORSE AHEAD?

The industry’s bottomline will get worse due to new regulatory compliances this fiscal year. New safety norms will also add to the cost of manufacturers. In a market where consumers need to be lured into showrooms, the ability for the industry to pass on the cost is suspect. It is something that has already impacted the two wheeler segment where costs have gone up but the demand has remained subdued.

“The next one year will be tough for the industry,” said Vishnu Mathur, director general at Society of Indian Automobile Manufacturers.

[“source=indiatoday”]