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Care Rating Update on Indian Automobile Industry for April to August 2019

Auto News - Published on Thu, 19 Sep 2019

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August 2019, auto industry sales (including PVs, CVs and two & three wheelers) registered a YoY decline of about 13.3% in overall sales vis-a-vis a double-digit growth of 14.5% registered a year ago. However, in August 2019, the sales of passenger cars (led by MUVs) and three wheelers have witnessed growth of about3.8% and 9% respectively on m-o-m basis, while the decline in sales of commercial vehicles and two wheelers have narrowed down to 7.4% and 0.3% m-o-m respectively vis-a-vis a decline of 17.5% and 6.6% during the previous month.

The sales growth during the period was largely restricted on account of weak demand for commercial vehicles and passenger vehicles registering a double-digit decline of 21.5% and 18.8% YoY while decline in sales of two & three wheelers segment was restricted to 12.2% during the month according to the latest data of the industry body SIAM. Price hikes of about 10-15% in passenger vehicles and two wheeler segments due to new safety norms starting April 1, 2019, higher insurance costs, increased fuel costs and unsold inventories at retail (dealers) level causing slow movement in wholesale movement led to the overall decline of automobile sales during April - August 2019.

Demand for exports remained largely muted during the period with overall exports registering a marginal growth of about 1.4% vis a vis a double-digit growth of over 26% during the corresponding period of previous year on back of slowdown in the global economies.

Outlook FY20
In April-August 2019, automobile sales witnessed the sharpest decline of 13.3% YoY. Such double-digit drop was witnessed during the same period in FY93, when sales declined by over 21% YoY. The decline in sales in FY20 was led by price hikes due to new safety norms starting April 1, 2019, higher insurance costs and ownership costs, liquidity crisis in the NBFC sector, increased load carrying capacity for M&HCVs that led to high inventories causing slow movement in movement of vehicles. We have therefore revised our outlook for overall auto sales (excluding tractors) to 5-7% for FY20.

Going forward, we expect demand to continue to remain muted during Q2 FY20 and pick up only by Q3 FY20 and continue in Q4 FY20 with various planned product launches, festival demand and pre-buying of automobiles before the implementation of BS-VI norms on April 1, 2020. Also, with higher MSPs announced for FY20, farm income is expected to be marginally higher and encourage rural spending.

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Posted By : Mohan Sharma on Thu, 19 Sep 2019
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