When India’s automotive sales started slowing down early this year many industry experts expressed hopes that the festival season would come to the rescue, boosting the sagging sales graph and making up for the shortfall.
Now that the festival season has kicked in with the Ganesh Chaturthi festival on September 2, which is celebrated in western parts of India, including the country’s commercial capital Mumbai, automobile dealers are not expecting any significant sales growth as against last year.
Most of them are resigning themselves to flat or marginal growth for the second successive year. Last year, automobile manufacturing companies experienced poor festival season sales blamed on the bankruptcy of India’s largest shadow banker, IL&FS, and the lack of liquidity in the banking system.
Sales of automobiles during the festival months typically comprise almost a third of the total vehicles sold during a particular year. The festival season spans the months of September and October with the celebration of different festivals in various part of the country. Festival season sales climax during Diwali with numerous discounts across all products ranging from textiles to cars. (Those discounts often are extended to Christmas and New Year.)
However, this year the dealers’ expectation is muted as passenger vehicle manufacturers Maruti Suzuki India Ltd, Hyundai Motor India Ltd, Mahindra and Mahindra Ltd and others reported a double-digit fall in wholesale dispatches to dealerships in July and August.
The fall is even more steep in the sales of medium and heavy-duty commercial vehicles, excluding buses, as transporters deferred purchases owing to excess capacity caused by the slowing economy and the consumption slowdown. In the month of August it crashed by almost 60%, according to the monthly sales data released by truck makers.
The overall volume at India’s top four commercial vehicle makers — Tata Motors, Ashok Leyland, Volvo Eicher and Mahindra & Mahindra — fell 59.5% to 31,067 units during the month, compared with the year-ago period. In desperation, truck makers are now offering discounts.
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In the two-wheeler segment, major players such as Hero MotoCorp, Bajaj Auto and Royal Enfield registered a decline in sales. While Hero MotoCorp saw a decline of 20.6%, for Bajaj it was 21% and for Royal Enfield, the drop was 24%.
One of the most important reasons behind the slowdown had been the lack of credit options available to both customers and dealers from banks and shadow bankers, as financial institutions tightened their respective credit requirements.
The Federation of Automobile Dealers Associations is hoping the Goods and Services Tax Council will decide to reduce the rate of taxes levied on passenger vehicles, a move the group hopes will generate some demand in the coming months. The auto sector currently is assessed the highest base tax rate of 28%.
Indian Finance Minister Nirmala Sitharaman has said that the government will take a proposal to reduce the goods and services tax rate on automobiles to the council, which will be meeting on September 20.