Federation of Automobile Dealers Association (FADA) has stated that the Indian Auto Retail sector achieved a modest 2.61% year-on-year (YoY) growth in May 2024.
The data highlights that the two-wheeler sales registered positive growth of 2.5 per cent Y-o-Y, however, the passenger vehicle sales declined by 1 per cent. The sales of three-wheelers increased by 20 per cent and Commercial Vehicles (CV) segment also experienced a growth of 4 per cent YoY. However, in the rural economy, the sales of the tractor declined marginally by 1 per cent Y-o-Y in May.
FADA President Mr. Manish Raj Singhania said, “In May 2024, the Indian Auto Retail sector achieved a modest 2.61% YoY growth. The two-wheeler (2W), three-wheeler (3W) and commercial vehicle (CV) segments grew by 2.5%, 20% and 4% while passenger vehicle (PV) and tractor (Trac) were in red by 1% each YoY. The two-wheeler segment grew by 2.5% YoY but declined by 6.6% MoM. Dealers reported supply constraints, lack of OEM marketing activities and impacts from extremely hot weather and elections. Positive rural demand due to expected good monsoon and improved finance availability were also noted which kept the counters ticking.”
The PV segment showed -1% YoY and a -9.5% MoM decline. Dealers cited the impact of elections, extreme heat and market liquidity issues as major factors. Despite better supply, some pending bookings and discount schemes, the lack of new models, intense competition and poor marketing efforts by OEMs affected sales. Additionally, increased customer postponements and low enquiries further contributed to the challenging market conditions. Due to the extreme heat, the number of walk-ins to showrooms dropped by around 18%.
The CV segment showed a 4% YoY growth but an -8% MoM decline. Dealers reported that elections and extreme climatic conditions heavily impacted sales. Despite growth due to a low base from last year and increased bus orders, the industry faced challenges from wholesale pressures, government policy effects, and negative market sentiment. Additionally, good movement in market loads, cement, iron ore, and coal sectors contributed positively.
Overall, while the auto retail sector saw mixed results, the industry is navigating through significant challenges with cautious optimism for the coming months.
Near-Term Outlook:
The near-term outlook for the Automobile Retail is ‘cautiously optimistic’, influenced by a mix of positive and challenging factors across various segments. Post-election results are expected to bring stability and improve market sentiment, while the formation of a continued government could boost infrastructure projects and economic activities. Dealers are hopeful about better supplies and positive movement in key sectors like cement, coal and iron ore. The India Meteorological Department (IMD) has forecast above normal rains at 106% of the long-period average (LPA) this year, which is expected to enhance rural demand and support economic activities. However, extreme weather, such as heatwaves and heavy rains, along with the reopening of schools in July, might delay purchase decisions.
Despite these positive indicators, challenges persist, including intense competition, lack of new model launches and poor marketing efforts by OEMs. Liquidity issues and high inventory levels continue to strain profitability for Dealerships. Although discount schemes and good product availability are in place, low customer enquiries and postponements due to seasonal factors remain concerns.
Uneven monsoon rains have previously impacted farm sector growth and while this year’s above-normal forecast is promising, it raises the risk of possible floods in some regions, potentially disrupting the market. Overall, while there is potential for growth with the new government formation and favourable economic conditions, addressing these challenges will be crucial for sustained improvement in the automotive market.