Demonetisation impact: Car, bike sales to feel the heat

If the troubles of low sales during festive season weren't enough, PM Modi's demonetisation drive is likely to hit automobile sales, analysts say. 
 
“About 70% of India’s auto sales are financed with loans,” said Vishnu Mathur, director general of Society of Indian Automobile Manufacturers (SIAM) in the report. This means a large 30% of transactions take place using cash or other instruments in India. A reason why automobile sales could be impacted in the near term.

Carmakers sold nearly 2 lakh cars in the country during October, a jump of nearly 4.5% but a 0.1% since September while Total sales of two-wheelers in the country grew by 8.72%. Scooter and motorcycle sales also saw single digit growth of 8.24% and 7.37%, respectively in October.

Two-wheeler makers in India sold 1,64,55,911 units during 2015-16 as against 27,89,678 cars. Total vehicle sales also crossed 20 lakh for the first time ever, SIAM data show.

Source: SIAM

This decision may temporarily impact rural auto sales, according to a recent Bloomberg report as rural automobile market is driven mainly by cash transactions.

An analyst who wished not to be identified citing company policy told Zeebiz that there is likely to be an impact on the automobile business in the near term as a large majority of rural sales are done by cash deals. Most of the two-wheeler sales in the rural market are known to be driven by cash transactions.

“This is also primarily because disclosure of the PAN card number is not mandatory for purchasing two-wheelers, like with buying other vehicles. A reason why these cash transactions are rampant in this segment,” he said.

Another automobile analyst on the condition of anonymty told us that the industry will see a sentimental impact due to this decision. "Although most of the auto industry operates on financial instruments such as cheques, loans, digital payments, etc, there are certain rural areas where there are cash transactions done for buying two-wheelers or other premium vehicles."

Moreover, rural market contributes the biggest share of two-wheeler sales in India.

Abdul Majeed, Partner-Price Waterhouse in a Hindu Business Line report said that he thinks the move will definitely have an impact on two-wheeler segment. He also, that there will be impact on SUVs, premium vehicles and second-hand car sales because these are the areas where more cash transactions happen.

The report further said that SUV, premium car sales could take a hit as 35-40% of the price of an SUV and premium cars are paid by cash in rural areas. Hence, these segments too could seen a decline in sales in the near term.