Demonetisation impact: Auto sales enter slow lane in November

Auto shipments to dealers in November fell sharply from the previousmonth as buyers developed cold feet in the aftermath of the ban on old Rs1,000and Rs500 notes, which triggered a cash crunch.

Car makers in India report dispatches to dealers and not endusers. Analysts expect dispatches to decline further in the coming months asauto makers seek to match supply with slowing demand.

Mahindra & Mahindra, India's top maker of sport utilityvehicles, had domestic sales of 29,814 in November, down 38.8% from October and24.3% year on year. Domestic sales at Tata Motors, India's biggest auto makerby revenue, fell 28.4% month on month to 33,274 vehicles. TVS Motor Co.reported sales of two-wheelers last month dropped 27.9% from October. Otherauto makers also reported double-digit percentage declines from October's sales.

Maruti Suzuki India Ltd's dispatches rose to 126,325 unitsfrom 123,764 units in October. That marked a 14.2% rise from a year ago.Consignments of entry-level models such as Alto and Wagon R increased 8%year-on-year while those of compact car models rose 10%. Unit sales werepropped up by a strong growth in utility vehicle sales, which rose 98.1% to17,215 units.

The  November 8 demonetisation, which took out 86% ofthe currency in circulation by value, introduced uncertainty in the market at atime when Mahindra had expected a sales boost from a normal monsoon and softerinterest rates, president and chief executive Pravin N. Shah said.

"While it's a good and welcome step in the mid to long term,this has dampened overall sentiments, leading to postponed buying, therebyresulting in a major drop in volumes in November," Shah said.

Three weeks after the government decided to scrap high-valuenotes in a crackdown on black money, cash shortages persist across the countryand long queues of people are still visible at bank branches and ATMs.

"People have been postponing the purchase and delayingtaking the delivery of their vehicles due to the cash crunch," said atwo-wheeler dealer, adding that November sales for his dealership had been thelowest since 2005.

In a note on the impact of demonetization on auto sales,IIFL Institutional Equities Research said extensive checks across 40 autodealers reveal that retail sales are down 30-60% across segments in the firstthree weeks since demonetization.

It said there has been no material improvement in demandover the course of these three weeks, during which sales of sport utilityvehicles had borne the brunt, with retail sales almost halving. Sales of twowheelers, tractors and commercial vehicles are down 30-50% and car sales down15-25%, it said. "There is risk to our growth forecasts across segments," saidIIFL. The firm has cut its earnings per share estimate for the auto sector byup to 8%.