Sales for entry-level cars fall over high acquisition price, low demand

The sharp decline in sales, for the tenth consecutive month, has forced job losses and production cuts across India's massive auto sector and now the downturn can be seen affecting automakers' small cars portfolio too. A segment-by-segment analysis reveals that entry-level car sales has crashed by more than 56% in the first five months of this fiscal.

This year, the entry-level premium segment has witnessed more competition than ever before. Although affected by the ongoing economic slump, the drop in sales is largely due to the customer's decision to postpone the purchase, as per dealers.

The production of passenger vehicles (segment under PV) declined by 19.13% in April-August 2019 over the same period last year, while the sales in the segment declined to 29.41% for April-August 2019, as per SIAM data.

On a year-on-year basis, the sales under the passenger vehicles category was down 31.57%, from 2,87,198 units recorded during Aug 2018 to 1,96,524 units in Aug 2019.

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As per industry experts, the 'saving mentality' of the entry-level buyers in times of economic downturn causes many potential buyers deferring purchase.

Another factor hitting the buyer hard is the double-digit rise in acquisition price made customers much more cost defensive, even at the time when industry expects a boom from the festival season, which begins this month and continues till late October. As per industry experts, the prices of entry-level cars have gone up by 14-24% in the last 2 years.

The spiralling effect of such a price-sensitive approach by the customers has led the carmakers to pull the plug on small cars in its portfolio.

Speaking in individual model terms, Maruti Suzuki Alto and Renault-Nissan's Kwid and Redigo are the only participants left in the entry-level cars segment, with Tata Motors and Hyundai pulling out Nano and Eon, marking their exit from the market share of entry-level cars.

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Earlier in August, Chairman of the country's largest carmaker Maruti Suzuki India (MSI) R C Bhargava had told PTI that smaller diesel cars would become expensive and thus out of reach for entry-level customers.

Similarly, the entry-level motorcycle segment has also witnessed a double-digit decline in sales in the April to August period, spreading across the industry.

While the production in the scooter/scooterettee segment dropped by 15.64% from 3,241,584 units to 2,734,458 units in April - August period, the sales declined 17.01% from 3,086,627 units to 2,561,604 units.

The motorcycles/step-throughs segment registered a decline of 8.64% in production and 13.42% fall in domestic sales, while mopeds saw a decline of 28.73% in production and a whopping, 20.39% in sales in April - August period.

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Many vehicle manufacturers are responding to the slump in demand by closing down or temporarily taking non-performing products off production lines. This slowdown is likely to continue to until BS6 norms kick in next year when manufacturers will be bringing new and updated production to these line.

Additionally, the subsequent drop in demand by the rural market, increase in insurance cost and lack in availability of finance has also affected the entry-level cars segment, as per SIAM's quarterly review.

Other factors such as non-availability of policy on vehicle scrappage, no GST benefits on IC engine vehicles, coupled with slowing consumption reflects the broad-based slowdown of the auto industry in India, the world's fourth-largest auto market.

While the downturn continues, there are definite expectations for the government-aided measures by the industry executives. To revive the sector, auto executives are demanding government-backed initiatives such as tax cuts, easier access to financing for both dealers and consumers as well as increasing the functional period of BS-IV vehicles.

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Mr Ayukawa, MD & CEO, Maruti Suzuki quoted "Government is sensitive about the slowdown in the auto industry and its implications. It is welcoming that Government is working to introduce measures to improve the situation. All key stakeholders - OEMs, suppliers, dealers, banks, etc., have to collaborate with confidence. We have to work together to come out of the slowdown."

Through a video message, SIAM Director General Vishnu Mathur on Monday said, "The August data only highlights the urgent need for the government to come out with some kind of a bigger stimulus package and to strengthen the already provided support by reducing the GST from 28 per cent to 18 per cent. If we miss on this opportunity, the festival season will also probably be not good. We have to look at the festival season. We must take decisions now to reduce the GST and announce a scrappage policy, which will help revive the industry."

Sharing his thoughts at the 59th Siam Annual Convention, Mr. Guenter Butschek, CEO & MD, Tata Motors said," As an industry we need to have 'One Voice' on technology play" and later added that, "In order to get out of the current crisis and not to miss the festive season, we require clarity from the government, here and now, on GST and scrappage policy."

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By Rupa Burman Roy