Automakers grim as demonetisation puts brakes on sales figures
Demonetisation has affected one of the fastest growing sectors with some automobile majors stretching their scheduled breaks in production from five to 15 days. But the automobile majors have taken this cash crunch as a challenge and are offering various incentives to pick retail sales
Published - 13-December-2016
The automobile industry, one of the fastest growing sectors, continues to face the wrath of the demonetisation. According to Society of Indian Automobile Manufacturers (SIAM), overall passenger vehicles which include cars, utility vehicles and vans, reported to grow 1.82 per cent to 240,979 units, the slowest since February. Car sales rose 0.29 per cent to 173,606 units in November while utility vehicles climbed 10 per cent to 53,800 units. Sales slipped below the two million mark after three consecutive months of over two million monthly sales. After a gap of 44-months, total automotive sales in the domestic market (passenger vehicles, commercial vehicles, two and three wheelers) reported to decline by over five per cent in November, the first drop of this calendar year.
N Raja, Director & Senior Vice President (Sales & Marketing), Toyota Kirloskar Motor, talks about the impact and shortcomings they are expecting from this cash crunch, “We acknowledge the government’s move to eliminate black money and counterfeit in the nation. The demonetization has impacted our business in some pockets resulting in a decline in registration. We expect a short term slowdown on the new car sales in the Indian auto industry; we are closely monitoring the situation to further understand what kind of impact it has on our new car and used car sales in the coming months.”
Jnaneswar Sen, Senior Vice President, Sales and Marketing, Honda Cars India Ltd, gives his own view, “Demonetisation is a bold step and we feel it will have a positive impact in the long run. The sudden decision, however, created disruptions in the market. The consumer sentiment went down and footfalls and enquiries at the dealerships also slowed down during November. The industry is facing severe situation of declined sales and showroom traffic, though we believe it would be a transitional phenomenon. The decline in demand is mainly postponement of the purchase timing and we will see incremental sales in the future, however it is difficult to forecast the timing when the postponed demand comes back.” The sales for Honda Cars India fell 45.42 per cent to 8,029 units.
In our previous report Sunish Kumar, National Head, Sales, Girnarsoft, which owns the auto portal Cardekho.com mentioned that he has seen 30-40 per cent decline in the ad spends, compared to the expectations based upon yesteryears’ trends. Earlier the Federation of Automobile Dealers Association (FADA) released data last month revealing that the footfall at the dealerships across India has dipped by 75 percent and bookings have come down equally by about 50 per cent.
Beating demonetisation blues
But the sector has taken this cash crunch as a challenge and not leaving any stone unturned to lure buyers to bring them back to showrooms.
In order to clear the inventory pile up at dealerships due to demonetisation, Mahindra & Mahindra is reportedly offering price discounts of up to Rs 2.17 lakh across its range. The offer is going to continue till the end of December.
Similarly the industry is also seeing tie-ups between automobile companies and banks and e-wallets to offer cashless facilities and fully-financed car loans. Honda is offering on road and ex-showroom funding deals with HDFC, AXIS and ICICI Bank. Sen spells it out, “In the wake of de-monetisation of 500 and 1000 rupee notes, there will be a big effect on the overall car buying process and the cash component buying is expected to go down. Also the margin money contribution will be affected for all customers. To ease deal closure and give comfort to the customer we have negotiated hundred per cent on road and ex-showroom funding deals with HDFC, AXIS, and ICICI Bank. Most of our dealers also have started to waive the card charges or implemented cashless payment method for servicing payment. In order to support our dealers, we are putting the highest priority to avoiding piling up the stocks at our dealers. HCIL withheld the wholesale in November and the stock level at Honda dealers is maintained at very healthy level.” Honda has reported to announce an average price increase of two per cent across models starting next month.
Even other automobile companies like Renault, Hyundai, Toyota and Nissan have taken the similar route. Hyundai is offering 100 per cent on-road price financing through HDFC, Kotak and Axis banks besides 100 per cent funding on ex-showroom prices through ICICI Bank and some other banks. Renault India has announced cashless transaction for customers making vehicle purchases and availing after-sales services. In order to facilitate bookings and cashless payments, the company is offering customers an option to pay the booking amount through Paytm and HDFC PayZapp e-wallets as well as cheques and demand drafts. Even Nissan is accepting cashless transactions.
Toyota is also going for similar options and tied up with ICICI Bank and Axis Bank. N Raja offers, “Just to help our customers during this phase, we have introduced various cashless schemes like payments through Paytm and other e-wallets to ensure smooth and hassle free buying experiences. We have arranged for 100 per cent on road funding from Toyota Financial Services and banks. And discussions are on with other financiers also.” It plans to increase prices by up to three per cent from next January, citing an increase in the price of raw material commodities like steel and aluminum over the last six months and appreciation of the yen in the international market.
In the midst of the setback caused by demonetisation, the only positive respite has been Maruti Suzuki, Renault, Volkswagen and Toyota posting double digit sales growth last month. The market leader Maruti Suzuki today reported a growth of 14.2 per cent in domestic sales on the back of selling 1.26 lakh units in November as compared to 1.10 lakh units sold last November according to media reports.
Toyota Kirloskar Motors registered a growth of 10 per cent when compared to the same period last year after selling 11,309 units in the domestic market this year, as stated by media reports. It has also managed to rake in 6200 bookings (and counting) for its latest models.
In the case of German car manufacturer Volkswagen, it managed to sell 4014 units last month as against 1942 units November ‘15.
French automobile company Renault posted a 23 per cent growth its sale of 9604 cars in November 2016 compared to 7819 units last November.
Meanwhile Korean car manufacturer Hyundai saw a single digit growth of 4.4 per cent after selling 40,016 units in the domestic market.
The grim picture still continues
SIAM also reinstated the fact that demonetisation has ‘temporarily’ disrupted the November 2016 sales. The ‘temporary’ disruption seems to be hitting the industry hard as Mahindra and Mahindra was reported to announce that it will stop the production of its models for few a few days in December 2016 to correct inventories. This is due to slow demand and products moving out of dealerships at a relatively slower pace.
Earlier in November 2016, Mahindra and Mahindra registered a cumulative drop in sales by 21.85 per cent as per media reports. This also included the tractor segment which witnessed a decline of 21 per cent in November 2016. According to reports this company is one of the worst hit by demonetisation due to cash crunch in rural areas.
This is generally the time when automakers go for scheduled shutdowns of productions to carry out factory maintenance. But the shutdowns will go on longer than expected stretching from a week to 15 days over this month and the next. This is happening in the case of Maruti Suzuki, Hyundai Motor, Honda, Ford Motor and Renault-Nissan at several of their plants.
Automobile majors are still perplexed about the long term impact of demonetisation on it. Raja is sceptical at the same time confident, “How does it affect the industry on a long term remains a question now. However, we are confident that the industry will soon revive from any uncertainty due to demonetisation.”For more updates, be socially connected with us on
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