- Education And Career
- Companies & Markets
- Gadgets & Technology
- After Hours
- Banking & Finance
- Energy & Infra
- Case Study
- Web Exclusive
- Property Review
- Digital India
- Work Life Balance
- Test category by sumit
Auto: On The Rough Road
Two-wheeler sales dropped by half after demonetisation. Used car sales are also down. How are they coping?
Photo Credit : Bloomberg
Two-wheeler manufacturers like Honda, Bajaj, Hero, Yamaha and others are a worried lot as demonetisation has directly impacted their sales across India. They predict at least a 25-30 per cent dip in sales figures in the next quarter as around half of the sales transactions have traditionally been in cash. But not any longer. In the aftermath of demonetisation, the sales of two-wheelers — be it motorcycles or scooters — have dropped significantly.
“Two-wheeler sales dropped by 50 per cent in the first 3-4 days after the announcement,” says Y.S. Guleria, senior vice-president (sales and marketing) for Honda Motorcycle and Scooter India (HMSI). Agrees Eric Vas, president of motorcycle business at Bajaj Auto: “Decline in enquiries was in the magnitude of approximately 80 per cent across the country,” Vas said in an interview. According to him the sales for two wheelers declined by approximately 50 per cent or thereabouts
in rural areas and approximately 25 per cent in urban areas.
The country’s largest manufacturer Hero MotoCorp reported a 12.86 per cent fall in sales at 4.79 lakh units in November compared to 5.5 lakh units 12 months ago. What is significant to note here is that Hero sold on an average more than 6 lakh units in the months of August, September and October 2016.
Bajaj Auto reported a 12 per cent dip in sales to 2.37 lakh units as against 2.70 lakh units in November last year. S Ravikumar, president - business development at Bajaj Auto says, “It is tough to ascertain when sales will pick up as the demonetisation pain could continue for a few coumore months.”
TVS Motor Company sales growth remained flat at 2.24 lakh units in November compared to 2.25 lakh units in the same month last year.
Roy Kurian, vice president (sales and marketing) for Yamaha Motor India is worried. “Lack of availability of currency notes could hamper the purchase plans for large section of buyers,” he says. Agrees Abdul Majeed, partner at PwC, an auto expert: “The move will have a big impact on the sales of two-wheelers in the coming two months.” According to Majeed, the demand for twowheelers may go down as much as 30 per cent as nearly half the buyers trade in cash.
“Sales figures for December and January 2017 may further go down as OEMs will have to cut down production as showrooms won’t be in a position to stock more,” Majeed added.
Two-wheeler manufacturers are tweaking their plans to counter any further ill effects of demonetisation. Honda Motorcycles said production is being “rationalised” to control inventories. “The ‘correction’ is being made both in factory production and dealer inventories. We are not loading the dealer with excessive inventory,” says Guleria.
Subrata Ray, senior group vice-president, ICRA says, “The government’s move could negatively impact demand in the short term for entry-level motorcycles that have a sizeable rural customer base.”
Feeling The Pinch
The used car market which is mostly unorganised and highly dependent on cash, is bigger than the new car market.
As per reports over 3.2 million used cars are sold annually in India compared to 2.8 million new cars that get registered. Unorganised players, who account for nearly 85 per cent of the market are struggling to sell their inventory. “People are deferring their decision to buy a used car and we are feeling the pinch,” says Mandeep Singh, a South Delhi car dealer who himself is struggling to exchange his old currency.
“We have seen a 30-40 per cent drop in sales in the past few days. We expect the market to recover in a couple of weeks,” said Nagendra Palle, MD & CEO, Mahindra First Choice Wheels, a pre-owned car company.
According to Kumar Kandaswami, Partner, Deloitte Touche Tohmatsu India, the impact of demonetisation is likely to cause a short or medium-term impact on the used vehicle sales, particularly the second change or after where the transactions happen through informal channels.
As per online marketplace CarDekho.com, the average traffic for used cars has declined by 30 per between November 9-15 compared to the same days in the previous year.
For Aarif Sheikh (name changed), a two-wheeler dealer from Jharkhand, demonetisation has taken a big toll. “Footfalls have declined by 70 per cent, enquires for bikes are only 4-5 in a day and sales have completely stopped. I was selling almost 20-30 bikes a day just a week before November 8,” he says. Then there are other dealers who are selling used cars at a premium if the buyer is coming in with cash comprising of the old Rs 500 or Rs 1000 notes. “People with plenty of black money are offering us very high price for used cars. I sold a 2012 model Scorpio for Rs 10.5 lakh. I was not expecting more than Rs 7 lakh for it before November 8,” says a dealer from Asansol, West Bengal requesting anonymity. He said there are ways to beat the ban. One of them is to change the date of the sale agreement with some help from authorities.
Another dealer in Cuttack said that the announcement brought him a windfall gain. “I sold two cars in old denominations and made extra Rs 4 lakh. I have four people in my family so I can make use of the Rs 2.5 lakh deposit limit.” Some dealers in Delhi- NCR also confirmed that they are willing to take any form of currency but if people are offering old currency, they will have to pay more. “There has been increase in enquiries for used luxury cars by black money holders,” says a Karol Bagh dealer.
Even though they are facing the challenges of declining sales, most two-wheeler manufacturers support the government’s decision. Pawan Munjal, CMD of Hero Motocorp termed the move as “bold” and “progressive” which will provide a significant boost to the economy and will create a transparent and inclusive financial system. Kurian of Yamaha said the use of plastic money and e-transactions is expected to intensify its momentum in the economy contributing to a more organised movement of funds. “It is a commendable step by the government and the situation will improve eventually.”
According to Majeed, a lot now depends on government spends on infrastructure in the near future. “If the existing conditions are improved, it will boost auto industry in the long run,” says Majeed adding that there will be fall in sales in Q3 and Q4 of FY17 for OEMs.
Kandaswami of Deloitte says the lack of cash flow in sectors like consumer products, construction, etc. may dampen the sentiment leading to the softening of demand in the immediate future.