In contrast to a moderation in passenger vehicle market growth, Indian commercial vehicle sales increased strongly during October.
IHS Markit Perspective
Significance: Passenger vehicle deliveries in India grew 4.5% year on year (y/y) during October, according to data released by the Society of Indian Automobile Manufacturers (SIAM). Sales of commercial vehicles meanwhile grew by 11.9% y/y during the month.
Implications: Although passenger vehicle sales growth moderated in comparison with the double-digit spurt seen in September, this needs to be viewed in light of the fact that the SIAM reports shipments by automakers to dealers.
Outlook: Structural developments such as progress on the introduction of a goods and services tax (GST) are likely to offer tailwinds to vehicle demand. However, these benefits are unlikely to materialise in the remainder of 2016. IHS Automotive forecasts the Indian light-vehicle market to expand by 7.5% y/y to 3.38 million units in 2016 before increasing to double–digit growth rates.
Passenger vehicle deliveries in India grew 4.5% year on year (y/y) in October, according to data released by the Society of Indian Automobile Manufacturers (SIAM). Automakers in the country shipped a total of 280,677 passenger vehicles to dealerships during the month, up from 268,630 units in the same month a year earlier. Sales were led by utility vehicles (UVs), which registered a massive jump of 21.4% y/y to 70,544 units. Meanwhile, sales of passenger cars posted modest growth of 0.5% y/y to 195,036 units in the month, while van sales declined 7.7% y/y to 15,097 units. Passenger vehicle sales during the first 10 months of 2016 stood at 2.49 million units, a rise of 8.4% y/y.
October turned out to be a good month for commercial vehicles (CVs) as well: their sales grew 11.9% y/y to 65,569 units. Driving shipments this time were medium and heavy commercial vehicles (MHCVs), which recorded a jump of 16.9% y/y to 25,934 units. Meanwhile, sales of light commercial vehicles (LCVs) expanded by 8.8% y/y to 39,635 units.
As a result of the solid growth during the month, total CV sales in the year to date (YTD) are up 11.0% y/y at 602,902 units.
Total industry volume (TIV) during October rose 5.8% y/y to 346,246 units, although this was down from the double-digit growth in September. TIV for the first 10 months of 2016 stood at 3.1 million units, marking growth of 8.9% y/y. It is worth highlighting that the sales figures reported by the SIAM represent dispatches by automakers to their dealers, rather than retail sales.
Production trails sales, exports outperform
Production growth closely trailed sales during the month. Passenger vehicle output grew 4.2% y/y to 323,443 units during October, while CV production gained 9.8% y/y to 66,955 units. Meanwhile, exports outperformed domestic sales, growing 14.0% y/y to 67,565 units in the case of passenger vehicles and 25.2% to 10,226 units in the case of CVs.
Outlook and implications
October's shipment levels indicate the market's buoyancy on account of festive buying, although sales growth moderated in comparison with the double-digit spurt seen in September (see India: 10 October 2016: Passenger vehicle sales in India surge 19.9% y/y; MHCVs drag CV sales in September). However, this needs to be viewed in light of the fact that the SIAM reports shipments by automakers to dealers. The high growth in September shipments indicated inventory stocking by automakers and dealerships.
Among specific automakers, Ford, Toyota, and Honda were the only losers last month. Although Maruti Suzuki managed to increase its sales 2.2% y/y during the month, it underperformed the wider market. The automaker is being dragged down by a poor showing in the mini (Alto, WagonR) and compact (Swift, Celerio) segments, where it registered declines of 9.8% and 1.8% y/y, respectively, last month. Although its sales of utility vehicles surged 90.9% y/y in the month, this was not enough to offset the weakness of passenger cars. There was a similar situation at Mahindra & Mahindra (M&M), which posted a 2.8% y/y increase in sales during October. The automaker is struggling from a high base effect, as well as renewed competition from newcomers in the compact SUV segment.
A key development for the market will be the introduction of a goods and services tax (GST). The tax reform received a major boost this month with the finalisation of four GST rates, although the applicable rate for passenger and commercial vehicles is yet to be ascertained.
Meanwhile, the central bank's efforts to control inflation have received a further boost from the government's latest move to demonetise high-denomination currency notes. The move is likely to further ease inflationary pressures in the economy and could possibly lead to another interest-rate cut before the end of the current financial year ending 31 March 2017. The demonetisation move is unlikely to disturb the well-established pattern of non-cash transactions in the mass-market segments. Although cash transactions are minimal in purchases of A- and B- segment vehicles, the proportion of cash transactions in higher segments has also been coming down steadily in recent years following the government's mandatory disclosure requirements for such transactions. Nevertheless, the move may present a short-term headwind on account of uncertainty and logistical challenges posed to banks. IHS Automotive will review the situation in the coming days and will update its forecasts accordingly. We currently forecast India's light-vehicle market to expand 7.5% y/y to 3.38 million units in 2016 before accelerating to double-digit growth rates.
About this article
The above article is from IHS Automotive Same-Day Analysis of automotive news, events and trends, and is a deliverable of the World Markets Automotive Service. The service averages thirty stories per day and also provides competitor and country intelligence. Get a free trial.