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Customer LoginsIndian passenger vehicle sales growth slows to 1.8% y/y in November, CV sales shrink on back of currency move
Given the paucity of currency notes, the situation remains fluid in the Indian economy, where 98% of transactions are settled in cash.
IHS Markit Perspective
- Significance: Passenger vehicle sales growth in India moderated to 1.8% year on year (y/y) during November, according to data released by the Society of Indian Automobile Manufacturers (SIAM). Sales of commercial vehicles meanwhile declined by 11.6% y/y during the month.
- Implications: The sudden slowdown stemmed from the government's abrupt move to decommission high-value currency notes, a move that has the potential to keep demand for passenger and commercial vehicles depressed in the months to come.
- Outlook: Although the long-term outlook for the Indian market remains positive, the short-term outlook has been clouded by the sudden policy move. As the calendar year is almost complete, IHS Automotive has not made any changes to its 2016 light-vehicle sales forecast. We project the market to expand by 7.5% y/y to 3.38 million units in 2016, but our forecast of 12.4% y/y growth in 2017 is under threat as a result of the policy move.
Passenger vehicle sales growth in India receded to just 1.8% year on year (y/y) in November, according to data released by the Society of Indian Automobile Manufacturers (SIAM). Automakers in the country shipped a total of 240,979 passenger vehicles to dealerships during the month, up from 236,664 units in the same month last year. The sales growth in November was almost single-handedly down to utility vehicles (UVs), sales of which jumped 10.1% y/y to 53,800 units. Meanwhile, sales of passenger cars increased just 0.3% y/y to 173,606 units in the month, while van sales declined 7.5% y/y to 13,573 units. Passenger vehicle sales during the first 11 months of 2016 stood at 2.73 million units, a rise of 7.8% y/y.
The performance of the commercial vehicle (CV) market was worse, registering an 11.6% y/y decline in monthly sales volumes to 45,773 units. Sales of medium and heavy commercial vehicles (MHCVs) declined 13.1% y/y to 17,499 units, while sales of light commercial vehicles (LCVs) shrank 10.6% y/y to 28,274 units. As a result of this decline last month, CV sales growth for the year to date (YTD) has decelerated to 9.0% y/y at 648,675 units.
Total industry volume (TIV) during November fell 0.6% y/y to 286,752 units. TIV for the first 11 months of 2016 stood at 3.38 million units, marking growth of 8.0% y/y. It is worth highlighting that the sales figures reported by the SIAM represent dispatches by automakers to their dealers, rather than retail sales.
Despite sales moderation, production and exports move up
Notwithstanding the softness of sales, passenger vehicle production and exports moved up significantly last month. Passenger vehicle output grew 30.9% y/y to 335,787 units during November, while CV production gained 15.5% y/y to 68,306 units. Meanwhile, passenger vehicle exports moved up 24.1% y/y to 64,160 units, while CV exports gained 25.1% y/y to 8,932 units.
Outlook and implications
The sales data for November represent a stark contrast from stronger figures in the immediately preceding months. Nevertheless, this moderation is in line with expectations and stems primarily from the abrupt move by the government to scrap high-denomination currency notes of INR1,000 (USD14.77) and INR500 in early November. As the decommissioning move was not complemented by the release of new notes in adequate numbers, liquidity in money circulation has reduced massively. Although the central bank subsequently introduced even higher-currency notes of INR2,000, the shortage of cash in lower-denomination notes has made it difficult to carry out transactions that are generally settled in cash. According to a report by the Payment Council of India, cash accounts for a total of 98% of consumer payments in India.
In addition to the cash crunch, the currency move has resulted in an environment of uncertainty among buyers, effectively stopping them from spending on big-ticket items such as vehicles. Although this is particularly true for passenger vehicles, the situation for CV fleet owners is no better as cash is used in the majority of transactions, such as fuel purchases and toll payments. Fleet owners are also grappling with significantly reduced cargo and freight demand from end customers.
Among individual automakers, market leader Maruti Suzuki posted robust growth of 14.2% y/y in vehicle shipments during November. Maruti is better placed than most with its new model launches and is in fact not able to produce enough Vitara Brezza compact sport utility vehicles (SUVs) and Baleno premium hatchbacks to meet demand. However, subdued figures reported by other automakers further corroborate the view that Maruti is an exception in an otherwise docile market. IHS Automotive is keeping an eye on developments and will adjust its sales forecasts accordingly. Currently, our light-vehicle sales forecast for India for 2016 stands at 3.38 million units, equating to growth of 7.5% y/y. Better growth rates are expected in 2017, with light-vehicle sales forecast to expand 12.4% y/y to 3.8 million units.
About this article
The above article is from IHS Automotive Same-Day Analysis of automotive news, events and trends, and is a deliverable of the World Markets Automotive Service. The service averages thirty stories per day and also provides competitor and country intelligence. Get a free trial.