Car, bike, scooter sales: Experts put a brake on Motown cheer, here’s why
11 Oct 2020

Auto sales have bounced back in the past two months, leading to speculation that the sector is back on track. Though manufacturers are still keeping their fingers crossed, higher dispatches of vehicles from factories to the dealers has led to some belief that the upcoming festival sales would see a substantial rise in demand. However, analysts caution at such optimism, pointing that it is still early days and the rise in sales could be due to pent-up demand. According to them, a clearer picture would emerge only around January-March period.  As per wholesales data shared by car makers, this year’s most recorded double-digit growth was in September. Sales of Maruti Suzuki, for instance, grew 30.8% over the same period last year. Hyundai India, similarly, saw 23.6% sales growth in September 2020.

“Sales increase in the last couple of months is due to the pent-up demand getting serviced; it could potentially also be due to commuters buying smaller cars instead of taking public transport and ride-sharing, and some people upgrading from two-wheelers,” says Som Kapoor, partner, automotive sector, EY India. “The January to March 2021 quarter will be the true reflection of whether the automotive market has recovered or not,” he feels. 

While GDP did contract 24% in Q1, it is improving quarter-on-quarter. Madan Sabnavis, chief economist at CARE Ratings, says the ‘level of negativity’ is decreasing by the month. “With unlocking, as people move more, they will consume more,” he says. As far as pent-up demand in the auto sector is concerned, he adds it usually stays for a quarter, but because of the festive season it may continue.

“Pent-up demand for cars, this time, is coinciding with both the festive and the harvesting season, as also hotels getting operational, so it will last for a while. Also, most sectors will see better performance, because even single-digit negative growth is an improvement over 24% GDP contraction (in Q1),” Sabnavis argues. Different segments of cars are seeing different growth rates. According to data by PGA Labs, the market research arm of Praxis Global Alliance, while entry, compact and premium hatchback car sales grew 35%, 48% and 51%, respectively, in September 2020, compact sedans grew only 7% and executive sedans 17%. In SUVs, while subcompact (under 4 metres in length) and compact SUVs grew 42% and 31%, respectively, premium SUVs (above Rs 20 lakh) saw sales falling by 6%.

Sanjeev Garg, practice leader, automotive, Praxis Global Alliance, gives three more reasons for sales surge, in addition to pent-up demand. “One, during the BS4 to BS6 transition, a lot of dealers almost exhausted their inventory, and post-lockdown they are filling that up. This is driving sales. Two, there have been a lot of new model launches, and substantial sales are coming from cars such as the new Hyundai Creta, Kia Sonet, new Maruti Suzuki S-Cross and Tata Altroz. Three, sales of entry-level cars are growing because a section of commuters is shifting from public transport and ride-sharing to private cars,” he says. 

For the oncoming festive season, car makers are taking steps to stock up inventory at dealerships and are launching campaigns to further push sales. Shashank Srivastava, executive director, marketing & sales, Maruti Suzuki India, says the company is replenishing stocks at dealerships.

“The stock was getting depleted due to good retail sales in the past months. We are cautiously optimistic on the festive season,” he says. Discounts, he adds, depend on market dynamics and vary from time to time and across geographies and models. “Last year, the industry was making a transition from BS4 to BS6, so discounts were in line for liquidation of BS4 stock. This year, with transition to BS6 and pent-up demand, coupled with supply constraints, discounts are lower.”

Honda Cars India has started the Great Honda Fest, during which it is offering cash discounts, extended warranty and maintenance on new-car purchase, as well as loyalty bonus and exchange benefits. Rajesh Goel, senior vice-president & director, marketing & sales, Honda Cars India, says, “In order to support easy buying options for our customers, smart financing options have been developed with several finance partners offering long tenure and easy EMI options.”

The article was originally published on Financial Express

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