Car sales expected to bounce back in July on lower prices, deferred purchases

Key highlights:

• Car sales for June was weak despite discounts by car companies
• July is expected to see a strong sales as car makers have reduced prices by 3-5%
• Customers decided to postpone their new purchases in anticipation of lower prices under GST

Car sales for June was weak despite the efforts by automobile manufacturers put in by offering huge discounts in order to liquidate stocks prior to the implementation of the goods and service tax (GST) on July 1. The sales declined as dealers had refused to stock up until July 1 and many OEMs reduced their shipments to dealers to liquidate their stocks.

ALSO READ: Why pre-GST discounts offered by car makers fail to sway buyer in June as sales fall

However, the main reason for these low car sales was a customers decided to postpone their new purchases in anticipation of lower prices under GST, said automobile analysts Sneha Prashant and Abhishek Kumar Jain in a HDFC Securities report.

“Passenger vehicles witnessed a double-digit decline, owing to lower shipments to dealers and postponement of purchases owing to expectations of price cuts post GST implementation,” they said.

The following month in July is however expected to see a strong month in terms of car sales as car makers have reduced prices by 3-5% to pass on the benefit of lower taxes owing to GST implementation.

“The uncertainties of GST played a spoil sport for the auto numbers of the month. However, the companies are closely observing GST and once the initial teething issues are sorted, it should definitely usher in a new era for the automotive industry. The focus on stock clearance led to slow down in dispatches; however July is expected to be a gradual growth month with bounce back in numbers,” said a Progressive Share report.

Several companies such as Maruti Suzuki, Toyota Kirloskar Motors, Jaguar Land Rover (JLR) and BMW on July 1 announced a reduction in prices of its cars in the range of Rs 2,300 to over Rs 2 lakh.

Maruti Suzuki has slashed the prices of most of its models by up to 3%, except for the diesel version of the sedan Ciaz and Ertiga with mild hybrid technology, which saw an increase in prices by over Rs 1 lakh.

ALSO READ: GST implementation in July may slow down automobile sales next month

Toyota has slashed prices of its cars ranging from Rs 10,500 and Rs 2.17 lakh. While BMW cut prices of its base end model of X1 by Rs 70,000 to Rs 1.8 lakh on the top end sedans like the 7 series.

Tata Motors' JLR reduced the prices of its entire vehicle range on an average by 7%. Even Honda Cars and Ford India today announced that they will cut the prices across models due to GST. For instance, Honda Cars cut the prices of its premium SUV CR-V by up to Rs 1.31 lakh. The prices of the mid size sedan City has reduced from Rs 16,510 to Rs 28,005.

Ford India has announced that it has reduced the prices by up to Rs 4.5% with immediate effect. The biggest cut will be in Mumbai for SUV Endeavour which will become cheaper by up to Rs 3 lakh.

Besides the purchasing decisions which were postponed to July, the reduction in the prices of cars in July due to GST is expected to push sales further during the month of July.

However, in the two-wheeler market all two-wheeler companies, except for Bajaj Auto and Honda Motorcycles & Scooters India (HMSI) reported a strong growth, owing to the ongoing marriage season demand.

The analysts expect two-wheeler companies to post double-digit growth in FY18, led by normal monsoon and a revival in demand.

In the commercial vehicle (CV) segment Eicher Motors, SML and Tata Motors reported a double-digit decline in sales, while Mahindra and Ashok Leyland reported good growth. This mixed bag of sales for CV manufacturers was as fleet operators postponed their purchases, while OEMs aligned their production or inventory to GST requirements.

“Growth will kick in H2 FY18, with an increased thrust on infrastructure and the rural sector and resumption of mining activities,” said the anaysts.