India’s auto sector is struggling while buyers play the waiting game

Are India’s prospective vehicle buyers playing the waiting game? Waiting for better incomes, better loan interest rates and even a better monsoon? That seems to be the indication that vehicle sales figures for April come trickling in.

The new financial year’s beginning was on a modest note for the auto sector as overall retail sales grew 3 per cent in April, compared to the same month last year. The figures were better than March and does provide for ‘cautious optimism’, according to the Federation of Automobile Dealers Association (FADA) which released the figures Monday morning, yet nothing to write home about.

While passenger vehicles (cars, SUVs etc) going up just 1.5 per cent and scooter and bike sales up 2.25 per cent, it seems like the Indian vehicle buyer is awaiting for better times before going in for a vehicle purchase, which is essentially a non-essential purchase.

What the buyer, and the auto makers and dealers, are pinning their hopes on, seems to be hopes of better times ahead — the just-concluded Rabi crops were decent enough, and two-wheeler makers especially are hoping that once the incomes from crop yields, procurement etc trickles in, rural areas could see an uptick in bike and scooter sales.

Likewise, the Met prediction of an above-average monsoon has also perked up the industry, which signifies that if it turns out realistic, sales in the second half of the financial year could turn out robust.

There is also the wedding season tailwind, which could perk up sales in the coming couple of months or so.

In towns and cities, the overwhelming demand for SUVs has been driving the market, though one adverse effect of this has been on the entry level car segment — with lesser models and lesser OEMs seemingly interested in launching new models.

However, there are enough troubling economic indicators which could upset this momentum. For example, Cantor’s Rural Barometer as well as GroupM data clearly hints at consumer selectivity in rural India at least, with household spending outpacing income growth — thanks to price rise (inflation). “(This means) non-essential categories such as two-wheelers are likewise plateauing amid rising living costs,” said FADA president C.S. Vigneshwar.

Vigneshwar also expressed worries over loan availability getting strained in the market. “Financiers are tightening customer-level credit criteria — higher CIBIL (credit score) requirements and down-payment mandates, despite broader banking system liquidity.” The government mandating OBD2B, which is installation of on-board fuel and emission gauges in vehicles, is also proving to be a pressure on price and margins for auto manufacturers.

While the personal buyer market is itself waiting and watching, there is at least one denominator which continues to be worrying — sale of commercial vehicles, which is a direct indicator of commercial/economic activity in the country. Their sales continue to decline further — April saw another 1 per cent decrease in sales. “Although financing availability remains broadly stable, enhanced support for first-time users will be critical to reignite momentum,” added Vigneshwar.

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