Rural buyers flock to vehicle showrooms on better incomes, urban recovery slower

According to SIAM dispatch data, two wheelers grew by 7.4% between July and September this year to 5.56 million units even as dispatches of PVs declined marginally by 1.5% to 1.04 million units.

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The real boost in vehicle sales this festive season has come from India’s hinterland, with good rainfall replenishing incomes and the GST rate cut making small cars (often the first four wheeler for a family) attractive to this segment of buyers once again. Shailesh Chandra, president of the Society of Indian Automobile Manufacturers (SIAM), said today that rural pockets are showing signs of strong growth due to a bountiful monsoon and the impending marriage season.As per SIAM data, passenger vehicle dispatches in September were up 4.4% year-on-year to 372,458 units; two wheeler dispatches increased by 6.7% to 21,60,889 units and three wheelers were higher by 5.5% at 84,077 units. Chandra said an early start of the festive season (Navratri began in September) and the early impact of recent GST rate cuts led to growth in almost all vehicle categories. Dispatches in each vehicle category – passenger vehicles, two wheelers and three wheelers – from factories to showrooms were the highest ever last month, he said. On whether the share of small cars in the overall PV pie has increased this festive season due to the GST bonanza, Chandra said “this, only time will tell”.He also said that the real impact in vehicle sales from the GST rate cut initiative of the government will likely be seen from next month. “There is a direct correlation between GDP growth and the growth in vehicle sales. If the GST cuts boost GDP because of an across-the-board effect, then passenger vehicles will also grow. Typically, PVs grow 1.1-1.2 times the GDP growth”.In September, PV dispatches were up 4.4% YoY but for the first six months of the fiscal year, the category remained in the negative territory at -1.4%. Two wheeler sales jumped 6.7% in September but between April-September dispatches have been flat at just 0.7% increase.Whether the momentum seen in September will be sustained in the second half of the fiscal year remains to be seen and a clearer picture will likely emerge by December, when the full impact of GST cuts, short term logistical issues impacting vehicle deliveries and the marriage season buying patterns are in.

Rural shines in retail too

Saharash Damani, CEO of the Federation of Automobile Dealers (FADA), said that while overall PV retail sales rose in September, “𝘂𝗿𝗯𝗮𝗻 𝗰𝗼𝗻𝘁𝗿𝗶𝗯𝘂𝘁𝗶𝗼𝗻 𝗳𝗲𝗹𝗹 𝗳𝗿𝗼𝗺 𝟲𝟮% 𝘁𝗼 𝟲𝟬% and the 𝗿𝘂𝗿𝗮𝗹 𝘀𝗵𝗮𝗿𝗲 𝗶𝗻𝗰𝗿𝗲𝗮𝘀𝗲𝗱 𝗳𝗿𝗼𝗺 𝟯𝟴% 𝘁𝗼 𝟰𝟬%.” In other words, four in 10 passenger vehicles were bought across showrooms situated in rural India last month. Damani also quoted FADA data to say that rural PV sales grew at over four times the growth rate seen across urban markets in September. “R𝘂𝗿𝗮𝗹 𝗣𝗩 𝘀𝗮𝗹𝗲𝘀 𝗴𝗿𝗲𝘄 𝟭𝟭% 𝗬𝗼𝗬 compared to 𝟮.𝟲% 𝗶𝗻 𝘂𝗿𝗯𝗮𝗻 𝗺𝗮𝗿𝗸𝗲𝘁𝘀. That’s not just growth; it’s 𝗮 𝘀𝘁𝗿𝘂𝗰𝘁𝘂𝗿𝗮𝗹 𝗿𝗲𝗯𝗮𝗹𝗮𝗻𝗰𝗶𝗻𝗴 of India’s auto demand map — with rural India emerging as the new engine of volume and aspiration,” Damani said.Puneet Gupta, Director India and ASEAN Automotive Market at S&P Global, pointed out that price sensitivity “is more for rural buyers” and the GST cuts have given a fillip to the mini car segment. The FADA data has further said that retail sales of PVs in September in the urban markets fell by a whopping -10.17% in September versus August. The decline in rural was much lower at -2.86%.

Second quarter puzzle

According to SIAM dispatch data, two wheelers grew by 7.4% between July and September this year to 5.56 million units even as dispatches of PVs declined marginally by 1.5% to 1.04 million units. Commercial Vehicle dispatches were up 8.3% to 240,000 units while three wheelers were at 229000 units, up by 9.8%. Within PVs, while the utility vehicle segment continued to dominate, sales dipped by 2.1% during the quarter. Chandra called this “flat” growth, dismissing any reversal in ‘SUVisation’ and premiumisation of the passenger car market. “We should not read too much into the UV numbers, they merely reflect stablisation of their share in the overall PV market. Not just UVs, the share of hatchbacks is also stabilising. The hectic launch activity in UVs is over and they will now mimic growth rates of the overall PV category”.