Here's why automobile sector largely escaped demonetisation blues in November

Sales figures of many automobile companies during the month of November seemed to have dodged the demonetisation bullet. Carmakers like Maruti Suzuki, Toyota, Tata Motors Volkswagen and Renault have posted double-digit growth when analysts expect severe contraction due to demonetisation.

As per the numbers made public by carmakers, domestic sales in November 2016 rose 4%, at 1,92,005 units. This came despite reports of a decline in sales of automakers after demonetisation which was announced by the government on November 8. 
 
Maruti Suzuki's domestic sales stood at 1,26,325 units, up 14.2% as against 1,10,599 units in November 2015. While sales of its compact segment grew by 10.8%, its utility vehicle segment surged by 98.1% during the month.

Toyota Kirloskar Motor also reported 10.03 % rise in domestic sales at 11,309 units in November. Tata Motors saw domestic passenger vehicle sales grow by 22% to 12,736 units last month as against 10,470 units in the year-ago period.

Also read: Despite demonetisation Maruti Suzuki, Toyota post double digit sales growth in November

Volkswagen India reported an over two-fold increase in sales at 4,014 units in November. It had sold 1,942 units in the same month last year. Similarly, Renault reported sales of 9,604 units last month, up 23 % from 7,819 units sold in November last year.

However, carmakers like Ford, Mahindra  & Mahindra and Honda reported sales declines of 21.62%, 32.78% and 45.42%, respectively. 

Many experts had estimated an over 30% decline in automobile sales and the Federation of Automobile Dealers Associations (FADA) expected as much as a 30% drop in retail sales in November due to demonetisation.

How can then one explain the double-digit growth in car sales?

According to automobile analysts, the reason is inventory. 

One analyst who wished not to be identified said that inventory figures reported from the OEM (carmaker) to the dealerships and is not reflective of the sales at the retail level. He said the automobile sales at the retail level have declined by over 25-30% in November.

“The figures from the dealerships to the customers would be much lower as fewer customers have been walking in. The demonetisation impact will be reflective in the next month's figures,” said the analyst.

Another analyst pointed out that apart from the passenger vehicles (PV) sales of some companies which has seen a good growth, two-wheelers and commercial vehicle (CV) sales have seen a huge decline in sales. Even in PV sales Mahindra, Hyundai, Ford and Honda reported a large decline in sales.

Also read: Demonetisation impact: Car, bike sales to feel the heat

In CV segment Tata Motors posted a 17% decline in sales, while VE CV (JV between Eicher and Volvo) saw a 13% decline in sales. Among two-wheelers Hondo Motorcyles & Scooters posted a 0.31% decline, TVS posted a low 0.63% growth and Hero MotoCorp sales plunged by 13% in November.

“The sales figures reported of passenger cars are wholesale numbers. For passenger vehicles the sales are always good during the festive season. As a result the dealers order more during the subsequent months to beef up the supply at the dealerships,” said the second analyst Zeebiz spoke to.

Also read: Demonetisation: Car dealerships see near zero sales

He further added that financing of passenger vehicles is mostly done through loans and cash is not a problem. However, for two-wheelers the sales is dependent on cash, especially in rural areas.

“About 70-75% sales of two-wheelers in rural areas are done in cash. This is the reason the sales of two-wheeler companies such as Hero MotoCorp has seen such a decline and taken a big hit,” he said.

He further added, “For commercial vehicles, the price being at a much high price point has resulted in the demand declining when demonetisation hit. Also CV sales are depended on rural sales and fleet owners which use cash in acquiring.”