Auto blues: Passenger vehicle sales may skid 13% this year

New Delhi: Passenger vehicle sales are headed towards their steepest fall ever this year, with slowing economic activity, high vehicle prices, sparse credit availability and weak consumer sentiment weighing on demand through 2019.

The industry is estimating sales to fall 13% from last year — worse than an 8% decline, the steepest so far, recorded in 1998 — to about 2.95 million units in 2019. This would take the volume below the levels three years back. In 2016, automakers had sold nearly 2.97 million units. In 2018, sales were 3.39 million units, with an expansion of a little over 5% from the year before.

Industry veterans expect the market to improve from the second quarter of the next financial year starting April. But it may take two-three years to recover the lost volume, they warned.


“The worst is definitely over, but how much the market will recover, to what extent and when — it is very difficult to predict,” Maruti Suzuki India chairman RC Bhargava told ET.

“Vehicle prices have increased sharply over the past year, compared to average income levels. The central and state governments have to address issues related to affordability, otherwise it will not be possible for the industry to get back to double-digit growth, as 8% (growth as seen in the last decade) was inadequate for the need of the economy,” he added.

Banks’ ability to start lending “normally” is crucial, Bhargava said. “Banks have to start looking at taking reasonable risks. If credit availability dries up, the economy dries up.”

Lenders have tightened loan guidelines since the IL&FS debt crisis in late 2018, squeezing credit availability to automobile buyers and dealers among others.

“With the exception of BS-IV vehicles, which are currently available on discount, there are not many visible triggers which can boost demand at the moment. That too, has limited applicability,” said Vikas Jain, the national sales head at Hyundai Motor India. “Any meaningful recovery can take place after the switchover to BS-VI norms, possibly from the second quarter of the next financial year,” he said.

Prices of diesel vehicle are set to increase 15-20% depending on the segment, post the transition to BS-VI emission standards from April 1, 2020. Though the impact on petrol vehicles is unlikely to be as marked, industry insiders feel the changeover would disrupt demand in the market temporarily.

MG Motor India President Rajeev Chaba said: “We need to adjust for pipeline adjustments — firstly reduce inventory of BS-IV and then build up inventory of BS-VI vehicles — as that may give feelings of a ‘fake recovery’. Post adjustment, I feel that the recovery is going to take some time.”

He said the market had probably touched the bottom. “The real recovery would happen with change of sentiments as no longer it is an issue of only economics,” Chaba said, adding that it would take 6-9 months post the switchover to new emission standards for real recovery to set in.

N Raja, the deputy managing director for sales and marketing at Toyota Kirloskar Motor, said the industry would take a couple of years to recover the volumes lost in 2019. “The transition to BS-VI norms and the consequent price increase will change cost dynamics, particularly in the diesel small car and sedan segments. The share of diesel in these segments will fall further going ahead. It is only in bigger utility vehicles which require more power, more torque, that diesel will continue to remain relevant.”

Meanwhile, though record discounts on BS-IV inventory have helped boost enquiry levels this month, conversions remain slow. Manufacturers and dealers together are offering discounts in the range of 5-15% on passenger vehicles in December. This is 2-5 percentage points higher than the discounts seen during the festive season this year, said dealers.