September did not bring glad tidings after all for the automotive industry—though not unexpectedly by any means. The month records some of the lowest cumulative volumes in a month over the past five years at least—the only other instance where the industry landed in a similar spot was around peak covid and lockdown period. Even if demand suppression was not happening, government-imposed supply chain restrictions in the forms of limits on attaining Letter of Credit (LCs) for completely knocked down (CKD) units should have done the trick.
Any residual confidence in the industry’s growth should be put to rest at this point. In the first quarter of FY23, auto sales (including passenger cars, LCVs and SUVs) fell 61 percent; the decline consistent across all segments and prominent players. Both Indus Motors and Suzuki that dominate the market in terms of volumes saw volumes fall 52 percent and 57 percent respectively.
For a while it seemed that SUVs and LCVs would perform better and latch onto the market share left over by passenger cars but the latter still reign supreme. In 3MFY23 in fact, the share of LCVs and SUVs have fallen to 17 percent from 18 percent the same period last year which is not a dramatic difference but is consistent with the 5-year monthly average share of SUVs and LCVs of 17 percent. In August, the share of passenger cars in total sales dropped to 77 percent and SUVs/LCVs took on a larger piece of the pie at 23 percent; in September, this normalized bringing the 3M number right next to the five-year average. The overall pie, meanwhile is shrinking, and shrinking fast, with or without new players.
Thus far, the supply constraints induced by homeland policies are yielding desirable results. According to the PBS trade data, in the first two months of the fiscal year (July and August), import of CKD kits (that are assembled into cars at domestic factories) has fallen 37 percent compared to the same period last year. In August (which is the last available data), imports fell 41 percent.
Once government-imposed restrictions ease, demand-side factors will come to bite. Demand will indisputably diminish in vast rural areas affected and damaged by the floods. Additionally, huge and frequent price hikes for vehicles, reduced consumer purchasing power and prohibitive cost of borrowing will also push volumes down. However, with supply challenges causing assemblers to keep their shops shut down for days at end, it is difficult to ascertain the impact of demand, or what the demand really might be. The only certain thing is, auto volumes are dwindling and will continue down this trajectory in the foreseeable future.
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