Indian passenger vehicle sales decline 13% y/y, commercial vehicles drop 6% y/y in March

Indian passenger vehicle sales declined 13% year-on-year (y/y) in March to 256,979 units as buyers stayed away from dealer outlets under the effect of high ownership costs, and slowing economic activity. According to the data released by the Society of Indian Automobile Manufacturers (SIAM), the decline was led by passenger cars, which lost 22.5% in sales volumes during the month to 180,675 units. Although sales of utility vehicles jumped 34% y/y to 53,866 units during March, the gains were not enough to offset the decline in car sales. For the first quarter too, passenger car sales remained down 20.5% y/y to 512,608 units. Sales of multi-purpose vehicles (MPVs) inched up 1.7% y/y to 22,438 units in the latest month.

Although sales of light commercial vehicles increased 10% y/y to 55,365 units, overall light-vehicle sales (including passenger vehicles and light commercial vehicles) closed the month with a drop of 9.66% y/y to 312,344 units. Sales of medium and heavy commercial vehicles continued their declining trend and dropped 26.2% y/y to 29,591 units during the month. According to the data published by the association, total industry sales lost 11.4% y/y to 341,935 units during the month. For the first three months, total industry sales remained down 11% y/y to 942,455 units.

Except Mahindra & Mahindra (M&M) and Toyota, all major automakers posted lower sales or a marginal increase in volumes during the month. While M&M has been gaining market share on the back of its portfolio of utility vehicles, another beneficiary has been Maruti which has won market share despite sales falling but to a lesser extent. Another player making inroads is Renault with its Duster low-cost SUV. At the same time, Tata Motors, Volkswagen (VW) and Ford continued to underperform the overall market.

Production down but export volumes edge up

The sluggish demand in March also spilled over to domestic vehicle production, which continued to decline during the month. Production of passenger vehicles decreased 13.2% y/y to 291,713 units while production of commercial vehicles tanked 7.8% to 81,761 units. Vehicle exports from India remained under pressure, though still in positive growth, as Europe – the biggest destination of vehicles produced in India – continued to struggle with an economic slump. Exports in the passenger vehicle segment grew 3.07% y/y to 51,807 units during the month, while commercial vehicle exports dwindled 28.3% y/y to 5,848 units.

Outlook and implications

While the sales performance during the month has been disappointing, it is in line with reduced volumes in recent months and has not been entirely unexpected. March numbers also rounded the fiscal year 2012/13 with the first drop in sales of passenger cars in a decade. This was despite automakers and dealers stepping up cash discounts and promotional offers to finish the fiscal year with decent figures. Car sales dropped 6.7% y/y during the fiscal to 2.03 million units while passenger vehicle volumes during the same period grew 2.1% y/y to 2.6 million units, aided by a strong uptick in utility vehicles. SIAM, which initially expected a strong fiscal year 2012/13 has taken a more measured approach for the current fiscal. Passenger car sales in the country are forecast to grow in the range of 3% to 5% in the current financial year, SIAM said. "We should get back to some growth for cars, but we feel the first two quarters will be tough and things will get better only after," said Vishnu Mathur, director general of SIAM. Utility vehicles, which saw strong demand in the last fiscal year, are expected to register growth between 11-13%. The segment is expected to be helped by several new launches of compact SUVs including Ford's EcoSport. Sales of trucks and buses are seen growing 7-9% in 2013/14, the association said.

Meanwhile, recent policy decisions taken by the government has further reduced the attractiveness of diesel powered vehicles – a bright star in an otherwise depressed market (see India: 18 January 2013: Indian auto industry welcomes partial deregulation of diesel prices). Automakers had pinned hopes of a revival on the union budget through some policy initiatives. However, the government not only failed to acknowledge the industry's requests, it also imposed higher excise duty on certain SUVs – a move that is seen hurting the prospects of utility vehicles. However, heavy and medium commercial vehicles may be seeing higher sales volumes this year as latent demand, growth in key sectors such as mining, and a 1% drop in excise duty in truck/bus chassis provide further tailwind to demand. A budgetary provision of INR148.83 billion (USD2.7 billion) under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) is also expected to result in transport agencies buying an increased number of buses (see India: 1 March 2013: India to raise tax on SUVs and imported cars, increased public spending set to boost CV sales).

The downbeat sentiment in the auto industry is likely to undergo a gradual change in the second half of the year with further easing in inflation which will offer more room to the central bank to implement more rate cuts. Although some work has already been done in this direction, it has clearly undershot the expectations in terms of lifting consumer sentiment (see India: 30 January 2013: Indian industry welcomes interest-rate cut but says move unlikely to boost auto demand substantially). In line with the prevailing economic growth uncertainties, IHS Automotive has trimmed its calendar year 2013 light vehicle sales forecast by 28,000 units. Other factors remaining same, we expect light vehicle sales of 3.51 million units in India this year.