Moneycontrol Pro Panorama| Are potholes deepening for auto companies?

The premiumisation theme is playing out in automobiles too.

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Like all other sectors, automobiles too, blamed the slowing sales in the first half (1HFY2025) on elections and adverse weather conditions. However, after the festive season, data for the month of November have poured cold water on expectations of a sales recovery in the second half of the year 2HFY2025.

At an aggregrate level, including passenger vehicles(PVs), two-wheelers (2W) and commercial vehicles (CVs), wholesale dispatches clocked a single-digit year-on-year (yoy) growth in November. Failing industry and investors were PVs, dragged down by Tata Motors, although market leader Maruti Suzuki, Hyundai Motor India and Mahindra & Mahindra (in the listed universe) left a brighter record of around 10 per cent yoy increase in wholesales.

PVs that had revved up on the back of skyrocketing demand particularly for utility vehicles (UVs) soon after the Covid lockdowns were lifted, are now seeing moderation in growth. Indeed, even now, it is the UVs that are supporting overall sales in this segment. Dealers point out that car firms moderated dispatches in order to evaluate post-festive season demand.

The disappointing news is that footfalls have dropped and so have retails as reflected in the vehicle registrations. A report by Motilal Oswal Financial Services states that retail volumes for the month are expected to drop 8-10 per cent yoy. Rising discounts and freebies continue to be the bait used to persuade prospective customers to convert a purchase.

A deep dive analysis shows that the rise in cost of ownership, be it due to vehicle prices or fuel costs and elevated interest rates, is weighing on discretionary purchases including cars.

Cut to 2Ws, the sales picture is more optimistic, with overall industry wholesales up 15 per cent. But, performance was a mixed bag on domestic turf as TVS Motors clocked strong sales, while Bajaj Auto, Royal Enfield and Hero Motors posted a subdued show, with exports revving up to lift overall numbers.

The premiumisation theme is playing out in automobiles too. High-end luxury cars such as Audi, Mercedes and BMW clocked strong sales growth with no dearth of footfalls reported by dealers. But this is a miniscule portion of overall retail auto sales in the country.

The reality is that retail customer-facing auto (PVs, 2Ws) sales are slowing. Taking cognisance of this, manufacturers slowed down sales to prevent dealers from suffering financial losses. But will this suffice or, will we see production cuts follow suit to trim inventory levels and align supply to demand?

“We remain watchful of auto industry demand outlook, because of any slowdown in financing, which could arise if non-performing assets in the system keep increasing, as highlighted by certain financiers, as per our banking analyst,” states a report by Elara Securities India.

As for CVs, it is long known that FY2025 will be a damp one with flat sales growth or a marginal decline compared to the year before.

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