Passenger vehicle retail sales clocked a 21 per cent growth in 2022-23; barring tractors all the segments saw strong double-digit growth. However, things are expected to slow down this year as a sluggish rural market and the rising cost of vehicles is impacting two-wheeler and passenger-vehicle segments, especially in the entry-level, Manish Raj Singhania, the president of Federation of Automobile Dealers Associations, told THE WEEK in an interview.
Financial year 2022-23 was a good year for the automobile sector, with retail sales growth of 21 per cent. Latest data for May shows a sales growth of 10 per cent. What's your outlook for 2023-24? How do you see the trends?
Definitely, for passenger vehicles (PV) we saw highest retails last financial year. Dealers have opened the financial year with good bookings in hand also. In PVs, more or less the supply chain constraint and semiconductor crisis have all levelled out now. While the crisis is still there, things are improving month over month. For this financial year, looking at the current trends of walk-ins and bookings at the dealerships, and after the new high that was created last year in PV sales, we see a single-digit growth happening this financial year in passenger vehicles.
A lot of things will depend on the revival of rural demand, which is at stress and hasn't recovered fully. Two very good monsoons are required to recover rural demand completely. There is a huge gap there.
Tepid rural demand has also had an impact on the two-wheeler segment, especially entry-level. How do you see things panning out there?
In two-wheelers, if we compare with pre-COVID times, we are already behind by almost 18-19 per cent and two-wheeler sales have really shown positive growth whenever there's a festival month or it's a marriage season. Only those months, we are seeing two-wheeler sales picking up, otherwise, it's a drag.
The cost of acquisition (entry-level segment) went up by almost 45-50 per cent. Cost of operations in terms of petrol prices, BS-VI technology, higher the technology higher the cost of maintenance, everything comes into play and plus we have seen interest rates firming up. So, the cost of acquisition and cost of operations has impacted the entry-level customers, whether it is PV or two-wheelers. Even a Rs 500 rise in EMI (equated monthly installment) can affect their decision to buy or delay the purchase.
FMCG companies point to signs of some rebound in rural demand. But, it seems that things still look challenging when it comes to bigger spends like vehicles?
It's still challenging. Unless or until you have a very good monsoon, rural India cannot completely revive, because, primarily, rural India is totally dependent on agri economy. You need to have timely rainfall and quantity should be good.
We are already talking about El Nino effect, if that comes into play... There are a lot of ifs and buts, but, keeping fingers crossed for a good monsoon. We are already seeing the central government giving higher allocation to MGNREGS, wherever the water scarcity is there.
Even as we speak about these challenges, three-wheeler segment is seeing a strong momentum, sales were up 79 per cent in May. What is driving this?
In three-wheelers, there has been a change of dynamics totally. Three-wheeler industry really adapted to electric vehicles (EV). It's a transition happening there. Several cities have banned permits and registration of ICE (internal combustion engine) vehicles. So that comes into play. And secondly, while a lot of people migrated from big cities to small towns, they were in search of employment. So, three-wheeler is an idle mode for employment.
Are EVs also having an impact on the ICE two-wheeler industry?
Three-wheeler is a commercial application. People need to understand whether it is commercially and economically viable or not. Now, they have experienced it and they understand they can save almost 30-40 per cent more money compared to an ICE vehicle. That's why, EV penetration in three-wheelers is almost 56-57 per cent.
In two-wheelers, it was just about to happen. People were trying to understand what are the advantages of EV two-wheelers. But, what is happening is we saw the withdrawal of FAME-II subsidies. When actually the support is required, that has been taken away. This was the right time to extend that subsidy to the two-wheeler EV customer. It would have catapulted the segment.
We saw a huge jump in EV two-wheeler retails in May. A lot of pre-buying might have happened. But, in the months of June-July, you will see a definite downfall happening there because the new price point has come in and obviously, customer will take time to adjust to the new price point.
Is FADA representing the government on some of these issues?
We have very strongly represented seeking the reduction in GST on ICE two-wheelers, which is currently at 28 per cent. Mobility is very essential for India, especially in rural markets. A two-wheeler is lesser polluting, more customer friendly... And in the rural market, we don't have public transport system, so a two-wheeler is a necessity. Prices are already not affordable. Now you have to make those vehicles affordable. We have met all the GST council members. Our respective state council members have been meeting and representing them.
So, overall in two-wheelers, it's going to be a flat growth this year?
I expect the degrowth to continue compared to pre-COVID levels. There has to be some support system available, which is not there. We need to give a pill to that segment. A very good and timely monsoon can be a big contributor. There is no doubt about it.
