Car sales down for first time in 11 months amid India's cash crunch

11 January 2017

Car sales in India fell for the first time in 11 months in December, as a cash shortage triggered by the ban on high-value currency notes dented demand in Asia's third-largest economy.

According to data from the Society of Indian Automobile Manufacturers (Siam), sales of passenger vehicles, including cars and sport-utility vehicles, fell 1.36 per cent to 227,824 units last month from a year earlier. However, deliveries of utility vehicles grew about 30 per cent to 58,309 units, data showed.

Total two-wheeler sales dropped 22 per cent in the month to 910,235 units, SIAM said.

On 8 November, India banned 500- and 1,000-rupee notes in a bid to crack down on unaccounted wealth and corruption. The ensuing cash shortage resulted in a sharp contraction in demand across sectors, including automobiles.

Maruti Suzuki India, the nation's largest car maker, posted its first sales decline in five months in December. The company reported a 4.4 per cent drop in domestic sales to 106,388 vehicles from 111,333 units a year earlier.

Second-ranked Hyundai Motor India, the local unit of South Korea's largest carmaker, saw its sales drop 4.3 per cent in December.

Still, analysts say the weak sales seen in the last two months were better than what they had anticipated.

"We estimate that passenger vehicle industry volumes were flattish year-on-year in November-December, compared with 11 per cent growth over April-October," CLSA said in a note, adding that the impact was much lower than what it had feared. "We believe this is partly led by higher discounting in December and easier financing terms by banks."

CLSA expects the demand to rebound in January-March, and predicts a 4 per cent industry growth in the fiscal year ending in March.

The slowdown came at a time when the industry was bracing for a recovery thanks to a robust monsoon this year, and the government move to increase salaries and pensions of millions of current and former employees.

Earlier, Siam said sales of passenger vehicles are likely to increase as much as 12 per cent this fiscal year.

Sales of motorcycles continued to decline with about a 23 per cent fall in December, while that of scooters fell more than 26 per cent, the SIAM data showed. Last week, Hero MotoCorp, India's largest two-wheeler maker, reported a 34 per cent drop in sales, while second-ranked Bajaj Auto saw domestic demand falling 22 per cent.

Vehicle sales across categories declined nearly 19 per cent last month, the SIAM data showed.

"This is the highest decline across all categories since December 2000, when there was a drop of 21.81 per cent in sales," The Economic Times quoted Siam director general Vishnu Mathur as saying. "The reason is largely due to the negative consumer sentiment in the market due to demonetisation."

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