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Passenger vehicle sales growth in India moderates to 6.3% y/y during May, CV sales jump 16.9%

10 June 2016 IHS Markit Automotive Expert

Strong sales numbers cover up the differing fortunes of urban and rural India.

IHS Automotive Perspective

  • Significance: Passenger vehicle sales in India grew by 6.3% year on year (y/y) during May to 231,640 units, according to data from the Society of Indian Automobile Manufacturers. Commercial vehicles continued their strong showing during the month, with volumes up 16.9% y/y to 57,089 units.
  • Implications: The breakdown of the vehicle sales data for May indicates a growing divergence within the Indian market. While strong urban consumption is driving sales of compact sport utility vehicles, stress in rural markets has dented sales of A-segment cars.
  • Outlook: Considering the challenging environment, IHS Automotive has kept its light-vehicle sales growth forecast for the Indian market in 2016 unchanged at 7.4% y/y. We therefore expect the market to register sales of 3.38 million units this year.

Passenger vehicle sales in India expanded by 6.3% year on year (y/y) during May to 231,640 units, according to data released by the Society of Indian Automobile Manufacturers (SIAM). Monthly volumes were led by cars, which sold 158,996 units, although this equated to a decline of 0.9% y/y. In contrast, utility vehicle sales surged 35.9% y/y to 58,793 units. Shipments of vans declined by 3.4% y/y to 13,851 units. The strong May performance helped passenger vehicle sales for the first five months of 2016 achieve a 4.9% y/y improvement to nearly 1.2 million units.

Commercial vehicles (CVs) also continued their strong showing during May, albeit at a slower rate than in previous months. CV sales grew 16.9% y/y to 57,089 units during May. This was split between 24,951 medium and heavy commercial vehicles (MHCVs; up 21.0% y/y) and 32,138 light commercial vehicles (LCVs; up 13.9% y/y). The strong sales momentum for both categories means that CV volumes for the year to date are now up 19.0% y/y at 314,831 units.

Total industry volumes (TIVs) during May rose 8.2% y/y to 288,729 units. TIVs for the first five months of 2016 were therefore up 7.5% y/y to 1.51 million units. It is worth highlighting that the sales figures reported by the SIAM represent dispatches by automakers to their dealers, rather than retail sales.

Production, exports mixed

Vehicle production and exports during May remained mixed. Passenger vehicle output grew by only 0.2% y/y to 271,920 units during the month, while CV production expanded 18.1% y/y to 71,238 units. Meanwhile, passenger vehicle exports rose 0.5% y/y in May to 51,522 units and CV exports during the month gained 5.1% y/y to 9,150 units.

Outlook and implications

The Indian automotive industry once again turned in a solid sales performance in May, although growth moderated somewhat from April's double-digit percentage levels. Despite this moderation, the market remained robust considering the multitude of challenges currently facing the industry. Earlier this year, the government increased taxation on vehicles. Meanwhile, conditional bans on diesel vehicles in the National Capital Region (NCR) and Kerala have also not helped the industry.

The industry's challenges are leading to some prominent changes in the composition of the market. Following their decline in May, car sales have now been down in four of the first five months of this year. This dangerous trend is an indicator of two important trends currently under way in India. First, the growth in overall vehicle sales is primarily stemming from strong consumption in urban areas, where buyers are gradually moving away from hatchback and sedan bodystyles and embracing sport utility vehicles (SUVs). Nevertheless, automakers are continuing to target the former segments because of their large size. Second, the decline in car sales is also explained by the weakness in rural markets, where inexpensive hatchbacks are popular. Entry-level hatchbacks derive much of their volume from semi-urban and rural markets, but sales here have fallen considerably as a result of weak monsoon seasons in the past two years. Although the monsoon rains are expected to be above average this year, deficit rainfall for a third year could end up crippling sales of A-segment cars.

Meanwhile, irrespective of geography, diesel vehicles are fast losing buyers across India to their gasoline (petrol) siblings. This trend is more prominent in metropolitan markets where compact SUVs are attracting buyers from premium hatchbacks as well as from sedans. Sales for both Maruti Suzuki and Hyundai continue to be boosted by recently launched utility vehicles - the Vitara Brezza and Creta, respectively.

Despite the forecasts of better monsoon rains this year, challenges persist for the economy and therefore the automotive industry. The central bank's decision to lower its key lending rate by 25 basis points in early April was a welcome step, but it remains to be seen when the benefit of this will be passed on by commercial banks, which are battling high non-performing assets (NPAs). Meanwhile, a spike in oil prices could disrupt the central bank's policy of lowering interest rates and boosting demand. Considering this context, IHS Automotive has maintained its forecast for light-vehicle sales growth of 7.4% in India in 2016. As a result, we expect the market to register sales of 3.38 million units this year.

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.

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