Indian passenger vehicle market declines 9.3% y/y in January, CV sales down 20.9% y/y

The Indian vehicle market started 2014 on a weak note, effectively continuing the downward trend seen last year. Passenger vehicle sales dropped 9.3% year on year (y/y) during January, according to data released by the Society of Indian Automobile Manufacturers (SIAM). During the month, passenger vehicle sales stood at 219,809 units, compared with 242,460 in January 2013. Passenger vehicle sales were divided into 160,289 cars (down 7.6% y/y), 45,941 utility vehicles (UVs, down 6.3% y/y), and 13,579 multi-purpose vehicles (MPVs, down 32.1% y/y). The figures reported by the SIAM do not include sales of BMW, Audi, Jaguar Land Rover (JLR), or Mercedes-Benz as these companies do not report monthly sales figures.

As in previous months, the decline during January was much sharper in the commercial vehicle (CV) segment, which shrank 20.9% y/y to 49,987 units. Light commercial vehicle (LCV) sales declined 22.4% y/y to 34,218 units during the month, while sales of medium and heavy commercial vehicles (MHCVs) fell 17.4% y/y to 15,769 units. "With demand from mining and infrastructure reviving, we hope [that] demand for heavy commercial vehicles will also come back," commented Vishnu Mathur, director-general at the SIAM.

Production, exports also down

January's disappointing sales performance weighed heavily on passenger vehicle production, which dropped 7% y/y to 269,862 units during the month. CV production meanwhile declined 22.6% y/y to 55,667 units. Exports fared relatively better, with CV shipments increasing 8.7% y/y to 5,955 units from a small base. Meanwhile, a 6.8% y/y decline in passenger vehicle exports to 38,623 units caused total industry export volumes to decline during the month.

Outlook and implications

The weak performance of the overall vehicle market in January does not come as a surprise given that most automakers in India reported lower volumes earlier this month (see India: 3 February 2014: Preliminary data indicate passenger vehicle sales in India continued to decline in January). Although passenger vehicle sales were up 18.1% month on month in January, this was largely due to seasonal factors rather than a revival in demand (see India: 10 January 2014: Indian passenger vehicle sales slide 9% y/y in December, full-year 2013 volumes down 7.6%). Vehicle buyers often delay purchases until the start of the new year in order to obtain additional features offered in new-model-year vehicles. In the passenger vehicle segment, almost all automakers reported lower sales last month, with Honda, Ford, and Nissan the only exceptions among the major players. Meanwhile, automakers with diesel-heavy portfolios such as Tata Motors, Mahindra & Mahindra (M&M), and General Motors (GM) continued to underperform the overall market as diesel fuel is losing its attractiveness among buyers after its partial deregulation last year. Slowing economic growth and high interest rates are keeping buyers away from showrooms, and this combination is taking a disproportionately high toll on CV sales.

Some automakers are going against the tide but their sales growth is largely being driven by specific models; robust sales performances across portfolios are not yet evident. At Honda, sales are being fuelled by the recently launched latest-generation City sedan, which sold more than 7,100 units last month, in addition to the Amaze compact sedan, which has been enjoying a tremendous reception since its launch last year. Meanwhile, Ford continues to enjoy strong demand for the EcoSport compact sport utility vehicle (SUV). Taking inspiration from these successes, automakers have showcased a number of compact models at the current Delhi Auto Expo (see India: 6 February 2014: Delhi Auto Expo 2014: India's biggest automotive event underlines increased focus on compact cars, SUVs). However, some of the models at the event aimed at the mass market will not be immediately available for commercial sale, so they will be unable to reverse the declining market trend in the short term. Compact sedans showcased by Tata and Ford, as well as small SUVs by Volkswagen and Fiat, are in this category and are unlikely to go on sale for at least six months.

Looking ahead, continued high inflation, a weak investment climate, and political uncertainty ahead of the Indian general election are likely to limit near-term economic progress. India's central bank raised its policy repurchase rate by 25 basis points to 8% on 28 January – a move likely to put more pressure on interest-rate-sensitive sectors, including the automotive market. With no sign of an upturn in the coming months, the industry has renewed its calls for government intervention in the form of tax incentives. "There has been no respite for the past many months. Despite all the high discounts and freebies the industry continues to be in a negative [state]," said Sugato Sen, deputy director-general at the SIAM, adding, "We have asked the government to go for [a] uniform taxation structure and remove the variable excise duties levied on passenger cars. We are hopeful that the government will give us some sops in the budget next week". Although it is unclear whether the government will offer any relief to automakers, vehicle sales are likely to be boosted in the second half of the year by pent-up demand after last year's poor sales, along with expectations of interest-rate reductions. IHS Automotive expects Indian light-vehicle sales to grow 4.2% y/y to 3.13 million units this year.