Passenger vehicle sales drop 1% in May

Retail sales of passenger vehicles fell 1% year-on-year to 3.03 lakh units in May 2024 compared with 3.06 lakh units in the same month last year as heatwave kept buyers away from showrooms, according to the Federation of Automobile Dealers Associations (FADA).

Due to the extreme heat in India which broke records, the number of walk-ins to showrooms dropped by around 18%.

Dealers also cited the impact of elections and market liquidity issues as major factors for the decline in car sales, says FADA. On a sequential basis, car sales dropped 9.5%.

Despite better supply, some pending bookings and discount schemes, the lack of new models, intense competition and poor marketing efforts by OEMs affected sales, the dealers’ lobby says. An increase in customer postponements and low enquiries further contributed to the challenging market conditions, it adds.

The two-wheeler (2W), three-wheeler (3W) and commercial vehicle (CV) segments grew by 2.5%, 20% and 4%.

The two-wheeler segment grew by 2.5% year-on-year but declined by 6.6% sequentially. Dealers reported supply constraints, lack of OEM marketing activities and impacts from extremely hot weather and elections. Positive rural demand due to expected good monsoon and improved finance availability were also noted which kept the counters ticking, says FADA.

The commercial vehicle segment showed a 4% YoY growth but declined 8% sequentially. Dealers reported that elections and extreme climatic conditions heavily impacted sales. Despite growth due to a low base from last year and increased bus orders, the industry faced challenges from wholesale pressures, government policy effects, and negative market sentiment.

The near-term outlook for automobile retail sales is ‘cautiously optimistic’, influenced by a mix of positive and challenging factors across various segments, according to FADA. “Post-election results are expected to bring stability and improve market sentiment, while the formation of a continued government could boost infrastructure projects and economic activities,”

Dealers are hopeful about better supplies and positive movement in key sectors like cement, coal and iron ore. “The India Meteorological Department (IMD) has forecast above-normal rains at 106% of the long-period average (LPA) this year, which is expected to enhance rural demand and support economic activities. However, extreme weather, such as heatwaves and heavy rains, along with the reopening of schools in July, might delay purchase decisions,” says FADA.

Despite these positive indicators, challenges persist, including intense competition, lack of new model launches and poor marketing efforts by OEMs, the dealer lobby says.

Liquidity issues and high inventory levels continue to strain profitability for dealerships, it says. Although discount schemes and good product availability are in place, low customer enquiries and postponements due to seasonal factors remain concerns, it adds.

FADA, however, cautions that uneven monsoon rains have previously impacted farm sector growth and while this year’s above-normal forecast is promising, it raises the risk of possible floods in some regions, potentially disrupting the market.