Auto sales back to normal but BSIII vehicle ban puts brakes on growth

Six months after note ban, which drained out over ₹15 lakh crore from circulation, the automotive sector is back to normal, trends and analyses show.

In the cash crunch that followed the announcement banning high-denomination notes, sales of two-wheelers, massmarket budget passenger vehicles (PVs), and those in rural markets were worst hit since they are largely cash-dependent.

Sales nosedived in the third quarter (October-December) of FY 2016-17 but automakers hoped “most buyers were only delaying, not cancelling” their plans of buying a vehicle. Sales of commercial vehicles, however, remained marginally affected.

In December, the industry reached a 16-year low, according to the Society of Indian Automobile Manufacturers (Siam), with monthly domestic sales of cars, bikes and commercial vehicles dropping by 18.66%.

A Kotak Institutional Equities Research report based on Siam numbers said the impact of demonetisation was lesser in south Indian states than in the north and the west. Sales of passenger vehicles in the five southern states combined — Karnataka, Andhra Pradesh, Telangana, Tamil Nadu and Kerala — grew 16.9% in December 2016 while the growth was 0.3% in north India, 8.3% in eastern, and 8.5% in western states.

By March, vehicle sales accelerated for most companies. But some hit a speed-breaker by month-end when the Supreme Court banned sales of Bharat Stage-III vehicles from April 1. Sitting on huge stocks of the disallowed vehicles, truck and busmakers Tata Motors and Ashok Leyland, and bike-makers Hero MotoCorp, Bajaj Auto, etc, were among the worst affected by the order. But how much demonetisation was to blame for this cascading effect remains a mystery.

Demonetisation blues had faded by April, when all twowheeler makers, except Hero MotoCorp and Bajaj Auto, reported year-on-year monthly growth in sales.