NEW DELHI:The government’s demonetisation exercise has brought the automobile industry growth to a screeching halt, and carmakers now estimate the growth rate to halve year-on-year to around 4% in 2017.
Just a couple of months ago, carmakers were hopeful of double-digit growth this calendar year after a good festive season.
“Demonetisation has brought in structural and fundamental changes in financial markets affecting the buying process. It will take some more time for sentiments to normalise. Given the current challenges, the market is likely to grow by 3-4% in 2017,” said Rakesh Srivastava, senior vice-president (sales & marketing) at Hyundai Motor India (HMIL).
Sales of passenger vehicles have grown by around 7% to little less than 3 million units in 2016. Passenger vehicle sales in the domestic market grew by a strong 11% to 1,774,716 units between April and October 2016, before slowing to 1.82% in November. Passenger vehicle sales last month are estimated to have dropped by 1.7% to 226,539 units compared to 230,364 units sold in December 2015.
Besides lacklustre consumer sentiment after demonetisation, carmakers are worried about uncertainties surrounding implementation of the goods & services tax (GST) later this year.
“Though the effect of demonetisation has started reversing, it is taking more time to convert enquiries into sales. It also remains to be seen what rates are announced and implemented under GST,” said N Raja, senior vice-president (sales & marketing) at Toyota Kirloskar Motor (TKM). “Industry growth this year should be in the range of 4-5%,” he said.
Toyota — one of the few companies to record strong sales growth at 22% last month — currently has pending orders of 12,000-13,000 units for Innova Crysta and Fortuner. The company, which was hit hard by the ban on larger diesel vehicles in the National Capital Region (NCR) in the first half of the fiscal year, said volumes are now catching up and that it is expecting to break even by March.
The country’s largest carmaker Maruti Suzuki India (MSIL), which reported a 4.4% drop in December sales, said dispatches in the month were as per its production plan decided at the start of the year.
The company declined to comment on the outlook for calendar 2017 but said it is on track to meet its target for the fiscal year. “We should be able to grow in the range of 10% in FY17. We need more evidence to see and decide how much growth will come in beyond that,” said RC Bhargava, chairman at Maruti Suzuki.
Its closest rival Hyundai reported 4.3% fall in December sales at 40,057 cars, but it managed to post 5.2% growth to breach the half-million mark in 2016.
Pravin Shah, president (automotive) at Mahindra & Mahindra (M&M), said the industry is grappling with the short-term effects of demonetisation as well as reduced and postponed purchase decisions. He expects a gradual pickup in demand starting in the next few months. Mahindra’s passenger vehicle sales declined by 8% to 16,698 units in December.
Ford India, which reported 6% fall in December sales at 5,566 units, attributed the drop to “short-term headwinds”. Anurag Mehrotra, executive director for marketing, sales & service at Ford India, said, “As we move in 2017, the industry does face some short-term headwinds given the uncertainty regarding the impact of demonetisation and GST, while the medium to long term outlook continues to be positive.”