India

India Light Vehicle Sales Update
October 2019

Sales in September Improve Modestly

India’s Light Vehicle (LV) wholesales contracted by 24% year-on-year (YoY) to 267k units in September, marginally up on our prediction last month. Passenger Vehicle (PV) sales declined by 23% YoY to 215k units, while demand for Light Commercial Vehicles (LCVs), with GVW of up to 6 tonnes, fell by 27% YoY to 52k units.

On a seasonally adjusted annualized rate (SAAR) basis, LV sales improved to 3.06 mn units in September, compared to 2.92 mn units in August and 3.01 mn in July.

The industry as a whole sold 2.60 mn LVs between January and September, which equates to a decline of 15% YoY. PVs accounted for 2.08 mn units (-16% YoY), while the LCV tally was at 521k units (-11% YoY).

The principal factors behind this severe and prolonged downturn in the market are a lack of credit availability, higher vehicle prices, weak buyer sentiment and a slowing economy.

With India’s festival season now under way, footfall and inquiries at dealerships have reportedly increased. Demand traditionally rises during the festival period as Indians consider it an auspicious time to buy big-ticket items such as new vehicles.

Automakers and dealers, meanwhile, are offering massive discounts to move the metal in a depressed market, as well as to destock their existing inventory of BS-IV vehicles and entice consumers to purchase new vehicles before prices go up by an estimated 15-20% in April 2020, when BS-VI-compliant models are set to hit the market.

With the macroeconomic headwinds still looming, however, we are not expecting a significant rise in October sales when compared to the September volume. In other words, the industry is set to face a fairly muted festival season for the second year running.

Not only that but demand in Q4 2019 and Q1 2020 will come under pressure from the upcoming implementation of the stricter BS-VI emissions standards.

Indeed, the biggest conundrum facing the industry (and forecasters) is whether or not there will be a pronounced spike in pre-buying of BS-IV vehicles before the more expensive BS-VI models are offered across the board from next April.

Our view is that this is unlikely to be the case, given the persistent market slowdown: buyer sentiment remains low; credit conditions may not improve as quickly as hoped; and economic growth (especially in rural India) is slowing.

With that in mind, our current assumptions for the immediate future are as follows:

Q4 2019: Sales will decrease by 19% YoY, improving on the   28% YoY decline in Q3 2019. This will be driven by a slight easing of credit availability and lower financing costs, putting our full-year 2019 forecast at 3.36 mn units sold (-16% YoY).

Q1 2020: Sales will slip by a nominal 1% YoY, while still representing an improvement. The upturn will be driven by consumers taking advantage of heavy discounts on BS-IV vehicles.

Q2 2020: Following the BS-VI implementation on 1 April 2020, sales will decline by 14% YoY.

H2 2020: The market will start to recover and increase by 2% YoY for 2020 as a whole, to 3.42 mn units.

Looking ahead, as buyers become accustomed to higher vehicle prices, we expect demand to gain momentum in 2021 and 2022. This is likely to be followed by weaker growth in 2023, however, when the next cyclical downturn will hit the market, due to the likely implementation of the stricter CAFE norms in 2022/2023. Further out, India’s LV market is predicted to reach 4.96 mn units by 2026.

 

For further information contact Ms. Sukanya Tunhau
Phone +662 264 2050

 

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