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Will slow momentum in recent auto sales hamper ad spends?

Will slow momentum in recent auto sales hamper ad spends?

Author | Collin Furtado | Wednesday, Jul 08,2015 8:11 AM

Will slow momentum in recent auto sales hamper ad spends?

Car sales in the month of June saw a decline for most automobile manufacturers. Most of the auto manufacturers, who released their sales data recently for June 2015, saw a year-on-year decline. Few recorded flat sales number or a slight increase in sales from last year. This comes as a disappointment as car sales figures for the past two months showed positive growth of 18.4% in April and 7.7% in May, according to Society of Indian Automobile Manufacturers (SIAM) against the same period during the previous year. Though SIAM is yet to reveal the car sales growth figures for June, the results revealed by the top car manufacturers show a decline in growth.

Automakers such as Mahindra & Mahindra (M&M), Toyota and Ford saw a big decline in car sales in comparison to June period in 2014. M&M saw a 14.78% decline in sales during June, while Toyota’s sales declined by 12.87% and Ford saw the largest decline of a 37.62% decline in sales.

Except for Tata Motors and Volkswagen which saw good growth of 30% and 31.17% respectively in June 2015, the rest of the auto manufacturers far lower growth in comparison. Maruti Suzuki’s car sales in June 2015 for instance increased by only 1.6%, Hyundai grew by 8.3% and Honda grew a little higher at 12.65%. This shows that the auto industry is losing its momentum after a positive start to the quarter.

The reason for this decline in car sales is attributed to weak buyer sentiment which was in anticipation of a weak rainfall coupled with a weak demand in rural areas. The declining rural demand has pulled down car sales. Also the high base of last year’s sales during the same period has resulted in a drop in sales. In June last year the government made a move to end the excise benefits the auto industry was benefitting from and as a result companies tried to push the sales of as many cars as prices were about to rise in the following month.

The drop in sales figures comes as a bad news for the auto sector which is one of the key sectors for the growth of the economy. The slowdown in growth is also a disappointment after the industry managed to grow in double digits in April and higher single digits in May this year, but posted a lower growth in the month of June.

The automobile industry accounts for a large part of ad spends, especially in mediums such as television and print. As sales in the June declined or remained flat for many manufacturers we can expect this to have an effect on their quarterly results. With subdued results and weak demand, many car manufacturers might choose to postpone their new launches. Auto companies spend the most in terms of ad spends when launching a new vehicle. If launches reduce,  marketing spends could reduce too. 
Upcoming launches   

There are quite a few new car launches that are expected to be launched by auto manufacturers. Maruti Suzuki itself is expected launch 3 new cars during the second half of this year. This includes Maruti Suzuki XA Alpha which is to be launched by the second half of 2015, Maruti Suzuki iK-2 which is planned to be launched in September/October 2015 and Maruti Suzuki S-Cross in July 2015. Honda is expected to launch its new version of Honda Jazz in June 2015, while Hyundai is expected to bring out two new cars i.e. Hyundai Creta by July 2015 and Hyundai ix25 Compact SUV by mid 2015. The Renault 800cc Hatchback is expected to be launched by third or fourth quarter of 2015. The company is also expected to launch the Renault KWID by August 2015. Ford is expected to also launch two new cars in the next few months i.e. Ford Figo Aspire in July 2015 and the new Ford Figo Sedan by October 2015. Tata Motors is expected to launch Tata Kite twins, one a hatchback and other a sedan, by mid 2015. The Chevrolet Trailblazer is also expected to be launched in July 2015.

With sales of automobiles slowing down this month and with rural sales expected to reduce the many launches expected in July and following months could be delayed.

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