The Car Sales Slump Could Be Indicative Of A Consumer Economy Slowdown

Last week, Mahindra & Mahindra’s Thar ROXX saw 1,76,000 bookings within the first 60 minutes of the window opening after its launch. The price of the SUV ranges between Rs 12 lakh to Rs 22 lakh. Mahindra had a similar run with its XUV 700 model that had a waiting period running into 18 months post-Covid, also because of a production slowdown at the time. Right now, many hybrid car models, like Toyota’s Hycross hybrid, have waiting periods of up to a year.

On the other hand, India’s car dealerships are overflowing. The latest figures from the Federation of Automotive Dealerships (FADA) show that there are close to 8,00,000 cars worth Rs 80,000 crore lying unsold. Inventory levels are at a record 80-85 days. While the new Thar seems to be sought after, other cars, including entry-level ones, are not doing so well.

In October 2023, India’s largest car maker Maruti Suzuki’s chairman RC Bhargava had expressed hope that the demand for smaller cars would make a comeback in the next two to three years, stressing that this was important for the growth of India’s overall passenger vehicle industry. His thoughts made sense, except that Bhargava said roughly the same thing a month ago at the company’s 43rd annual general meeting.

Bhargava reiterated that Maruti remained committed to its small car lineup, projecting a revival in the segment by 2025-26 or the next financial year. He also said he firmly believed that low-cost and small cars were necessary for India’s economic and social conditions and that a temporary setback in demand would not change Maruti’s strategy.

Maruti’s small car sales have been falling. They fell more than 12% in the April to July 2024 period according to reports. Its utility vehicle segment however grew close to 16% in the same period. One can’t fault Mr Bhargava’s logic that upwardly mobile consumers, who aspire for cars, often graduate from two-wheelers to entry-level cars.

Car dealers have told me in recent months that potential buyers for entry-level cars are not able to put together loans because they cannot bring in the minimum amount. On the other hand, car prices have jumped up.

Former FADA president Manish Raj Singhania told me last month that salaries and incomes had not risen at the same pace as car prices had (70%). “Average prices for passenger vehicles were around Rs 6.5 lakh four or five years ago, now the average price is almost Rs 11 lakh,” Raj said. At the same time, premium cars, including SUVs, have done well in a phenomenon that is now well documented as the premiumisation of the consumer economy.

There are a few factors leading to this. Consumers will always stretch themselves for something new they like and if they see good value. Mahindra’s Thar is a model that consumers like, though I personally found its Jeep-like ride challenging for longer drives.

Then there is the classic value proposition such as for hybrid cars or for that matter even electric cars. The question that follows is: are consumers not finding the current crop of car models interesting and exciting enough?

Nilesh Gupta, director at Vijay Sales, which now runs 143 electronics showrooms across India, once told me in the context of slowing sales that nothing turned around sales better than a new model. He was referring to colour televisions but the same applies to cars to some extent as well.

The other more dreaded possibility is that a fundamental slowdown is kicking in. But to be sure, we’ll have to wait out the festive season. Till that point, India’s auto industry will depend on hope and of course car dealerships to park their unsold cars.