Indian car makers face slowdown as demand slumps

The top four automobile companies in India, including the largest car maker Maruti Suzuki, have reported about 20 per cent decline in auto sales in May 2019 compared to last year, in the middle of an economic slowdown. The auto industry has been facing weak demand sentiments and high inventory levels.

Maruti Suzuki has announced a significant drop in sales in May 2019, and except Super Carry, all other vehicles, including Ciaz and Vitara Brezza, posted negative growth.

Maruti Suzuki reported its worst sales figures since 2015 with a 22 per cent drop in May 2019, compared to the same period last year. The company sold 1,34,641 units till May 2019, down from 1,72,512 units the preceding year. Its domestic sales fell by 23.1 per cent 1.25 lakh units as compared to 1.63 lakh units in May last year.

Similarly, another leading automobile company, Mahindra & Mahindra, has also reported a 3 per cent drop in auto sales. It sold 45,421 units till May this year as against 46,848 the same period last year.

Rajan Wadhera, President, Automotive Sector, Mahindra & Mahindra, said, "while consumer sentiment and demand continued to be subdued during the pre-election phase, our focus has been on correcting the channel inventory."

Indian car makers, including Maruti, Mahindra & Mahindra, Tata Motors and Honda Cars India, together sold 2,29,294 units till May this year, a fall of 20 per cent compared to the corresponding period last year.

The slowdown isn’t limited to car sales only; the demand for tractor has also been subdued. The sales data of Mahindra & Mahindra, one of the largest tractor producers, shows that domestic tractor sales in May 2019 fell 17 per cent at 23,539 units, as against 28,199 units till May 2018.

Tata Motors also reported its numbers and the story is no different. The company registered a drop of 26 per cent in the domestic market. The company sold only 40,155 units as compared to 54,290 in the corresponding period last year.

Toyota, a Japanese automaker, reported sales of 12,138 units till May 2019 a drop of 7.4 per cent.

The downfall has been across all vehicle categories. Two-wheeler sales declined by 5 per cent and commercial vehicles, along with passenger vehicles, 8 per cent.

The car market, which is primarily driven by urban disposable income, is indicating severe stress in job and loan finance market. Experts said this could be a sign of economic slowdown, along with squeeze in credit.

"This is due to many factors. First, a broad-based cyclical slowdown in the economy; second, auto sales are sensitive to availability of credit and credit crunch has taken its toll; third, while timely data is not available, wage growth may have come under some pressure, leading to a slowdown in consumption," said Rajiv Singh, CEO, Karvy Stock Broking Ltd.

After observing the fast expansion between 2015 and the first half of 2018, experts had predicted that India would soon overtake Japan and Germany to become the world’s third largest motor market.

After this expansion of Indian automobile market, especially the car market, US management consulting firm McKenzie had said, "In the Automotive Mission Plan 2026, the government and industry set a target to triple industry revenues to $300 billion and expand exports seven-fold to $80 billion."

India faced an unexpected slowdown in consumer demand, and this has led to a build-up in inventory. It is believed that an inventory correction is underway and can exaggerate the extent of final demand.