Rural India Doing Well, Urban Sales Have Lost Steam: FADA President CS Vigneshwar On Auto Sales Trends

This year hasn’t been a great one for the automotive industry in India. India’s automotive sector continues to face growth challenges. After a great October, thanks to the festive season, passenger vehicle sales dipped 13.72% year-on-year in November while commercial vehicle sales also were down 6.08%. This is according to data from the Federation of Automobile Dealership Associations (FADA) that represents over.

Two wheelers did well, growing 15.8% YoY, achieving a record-high November registrations that even surpassed November levels.

The good news is that inventory levels are finally falling, to around 60-65 days after crossing 80-85 days in earlier months. The industry had expected more from the festive season. In the last one year, while entry-level cars have not done well in sales, SUVs have been a category that has done well.

FADA president, CS Vigneshwar said in an interview with The Core Report, “I think manufacturers are taking cognisance of the situation, but still we had about 65 days worth of stock, which is crazy. Because for us, in the industry, we think 21-day stock would be the perfect stocking levels given the kind of inventory we have, and the kind of margins we have.”

While original equipment manufacturers (OEMs) had earlier during the year blamed this on bad weather and other factors, now they’re beginning to see the pattern. It seems now that there is a fundamental problem.

President & CEO of Honda Cars India's President, Takuya Tsumura, highlighted weak consumer sentiment and increasing discounts driving "artificial demand" in the market, essentially saying cars would not sell without the discounts. These are never-seen-before discounts that automakers had to dole out to push sales. .

There is another factor that has been influencing car sales: finance.

CS Vigneshwar, said, “More and more people want finance, the accessibility of finance is higher. So, finance is really helping us actually drive the market.”

Over all, if the automotive sector numbers are looked at, it is clear that while rural India is doing well, it’s urban counterparts aren’t.

Read edited experts from the interview:

What was your reading of the Honda statement about sales largely being propped up by discounts?

Today, a lot of consumption is happening because of loans, because of the availability of finance. People are looking at EMIs rather than anything large. I think that sentiment holds good in anything which is financeable, if I can call it that way. I'm sure it's similar in cars too, so I would look at it as an area where the stocks are high, and stocks are a direct relation to the discounts available.

And today, we are having never ever seen before discounts available in the auto sector, especially in the PV (passenger vehicle) segment, for a single reason being our stocks are high and we want to offload stocks. But the good thing about it, if I can see a light at the end of the tunnel, it will be that the last two months, stocks have been coming down. Even last month, the stocks have dropped about 10 days compared to the previous.

I think manufacturers are taking cognisance of the situation, but still we had about 65 days worth of stock, which is crazy. Because for the industry, 21-days worth of stock would be the perfect level given the kind of inventory we have, and the kind of margins we have. So, a 21-day stock would be considered healthy stock.

We are still far away from it. I agree with what MD San had said from Honda, discounts are driving the market at this point.

When you say “never ever seen discounts”, can you give us some proportion or percentage of what you are comparing it with? On a value, for example, what is the, when you say never, I'm assuming you mean value.

Let's say Rs 1 lakh off on a Rs 20 lakh car, for example. That would be good enough?

Yes, that would be something which is available in the market, right.

On inventories, you said you're at about 65 days, which is still about three times what you should be holding. Last point from the Honda CEO, he said that we are running a whole month ahead, which is almost 3,30,000 cars for the industry.

Our whole life is running a few quarters there. We end up buying a phone on EMI, we end up buying the car on EMI. So this has been a factor of the last couple of decades.

It's only gotten stronger in the last couple of years. More and more people want finance, the accessibility of finance is higher. Finance is really helping us actually drive the market.

Is there a positive side to this, which is that inventories are coming down, which means manufacturers are reducing their production and therefore, what they send you next a quarter or so later, may be there are new models, but newer cars, or at least in the new year, could that change things?

It could, but this correction has to happen faster. One of the reasons also would be that November was a little bit tepid and it was disappointing that quite a few of the customers actually have shifted their requirements to December, anticipating higher discounts. So, now the higher discounts are available.

We're expecting these customers to come and pick these cars off our lots. So, that has to be combined along with the reduction in stock by a reduction in wholesales. When this happens, when both of these two happen, probably is going to be a better place where we'll be sitting first of January.

In November there has been some confusion, at least for people like me, who are looking at it from outside. We were pegging a lot of demand trends around the festival season, which itself was not strictly comparable because the dates differed from the previous year, which is 2023. So, where are we today? As we speak in the first week of December, are we able to see a normalised sales number?

This one will look good, according to me, because October was great. Even the 42-day period, which we took, we also released numbers last month, in the middle of the last month, we can get. And that was also looking strong.

But November was again a little bit weak because in passenger vehicles, we recorded a minus 13.72% degrowth. That was a degrowth. A lot of it is because people are waiting for the December offers.

Traditionally people used to actually jump to January saying that they don't want the older model. But now, in the last five, six years, people have actually seen value in actually picking up the car in December at a good deal.

What's your sense of the overall festive plus spending? I mean, I think your official position is that it's not been so good. So, what was the expectation then?

November was below expectations. Below expectations is going to be, we're expecting it to spill over into December in terms of retail.

At which point it could pick up?And however, two-wheelers have done well. How does that contrast or does that make up in any way for the industry as a whole?

Two-wheelers have been doing really good for the last year. And they've only been building up momentum. And what we saw last, in terms of month-on-month, it was a 26% increase.

Year-on-year, it was a 15% increase, 15.80% to be exact. A lot of it is actually coming from the rural areas.

The rural area right now, last month, it was crazy. Usually, the rural areas contribute about 55-56%. Last month, they jumped to nearly 64% of contribution compared to urban-rural split.

I think that was a huge revelation. And that was actually coupled with the fact that there was a nearly 29.88% increase in tractor sales year-on-year. Which means that the Bharat of India is doing really well.

It's actually becoming a locomotive to drive the economy. Having said that, the harvests have been good. There's a lot of positivity in the rural segment.

Apart from that, we also have seen that a lot of the minimum support price for a lot of crops have also gone up. This also helped. Whilst Bharat is great and we're quite happy for it, we've also seen that urban India lose a little bit of steam.

One example I would give you is that in 2020, the average cost of a car was 6.5 lakhs. The average cost today is about 10.5 lakhs. So, for a 70% increase in price, and this has happened for various reasons, including, you know, if fees are coming in and road taxes being increased in certain places.

But has salary gone up to the same extent? It hasn't. I mean, it won't.

So, there is some kind of a pressure in the discretionary spending in urban areas, as well as inflation pressures. So, it'll be great if the government actually can take cognisance of this and actually start reconsidering the GST for entry-level two-wheelers, entry-level four-wheelers, passenger cars. Because these entry-level products are not anymore luxury products.

They've all become really utility products where people want to use. It's a need. It is not a luxury anymore.

Any broad trends that you're seeing? Anything that you've been picking up in terms of what people are looking for? What's exciting about them?

Elements are still decent. The finance availability is good. Offers are high.

But these offers may not last for long.These discounts won't last forever. This is the last hurrah, if you ask me, because this high stock is going to be a last hurrah for discounts and will be a great time to go and pick up these vehicles from customers.

But after that, believe me, in January, February, March, things are going to start tapering down.

Some manufacturers are already saying they're going to increase prices.

Quite a few of them are increasing prices. Which means that there's a good time to go and pick the vehicle up right now. Because price hike is something which is inevitable.

Inflation will lead to a rise in input costs and they'll have to factor it in.