FADA suggests tough time ahead for passenger car sales. Here’s why

The passenger vehicle segment achieved a new sales record for the month of february, in the last month, with 330,107 units sold, marking a 12.3 per cent increase from the same month last year, according to a report by FADA (Federation of Automobile Dealers Associations). Additionally, two-wheeler sales also saw a 13.25 per cent increase to 1,439,523 units.

Manish Raj Singhania, President of FADA, attributed the growth in the two-wheeler market to increased demand from rural areas, a higher demand for premium models, and strong performance in the entry-level segment. He noted that a wider range of products and attractive offers contributed to this trend. Other contributing factors included auspicious marriage dates and an overall improvement in economic conditions.

The passenger vehicle segment's growth was driven by the strategic introduction of new products and improved vehicle availability. Overall, the Indian automotive industry experienced a 13 per cent growth in sales across segments, including tractors, commercial vehicles, and three-wheelers.

Merry, but not happier

While growth has been observed across all segments, the road ahead appears challenging. In fact, the data indicates that retail sales in the passenger vehicle (PV) sector decreased by 16 per cent in February 2024 compared to January 2024. Similarly, two-wheeler retail sales were slightly down by 1 per cent during the same period.

Singhania noted that while the PV sector benefits from positive customer sentiment and successful launches of high-demand models, the persistently high inventory levels, remaining at 50-55 days, are a significant concern. He emphasised the need for PV Original Equipment Manufacturers (OEMs) to adjust production to reduce these high inventory levels, thereby easing the financial burden of carrying costs on dealers, which is crucial for maintaining their financial health. Taking this proactive approach is essential for ensuring sustained growth and vitality in this segment.

However, the two-wheeler segment is expected to experience relief, as strong signals from the rural sector, coupled with increased demand for premium and entry-level segments, are set to boost the market.

In the PV sector, the combination of year-end buying incentives, improved vehicle availability, and seasonal factors such as weddings is expected to drive demand. However, the anticipation of elections casts a shadow over this positive outlook, with potential deferred purchases across segments.

Supply constraints add further complexity, especially in the PV segment, where the availability of popular variants remains a concern. External factors such as crop failures in rural areas could also dampen market sentiment and financial liquidity, posing additional challenges to sustained growth that may affect the two-wheeler market.

Overall, the outlook for March 2024 in the auto retail sector is cautiously optimistic. While year-end financial activities traditionally drive purchases across segments, feedback from dealers highlights the nuanced challenges of inventory management, overly aggressive target settings, and evolving consumer preferences, according to FADA.