Demonetisation brings down car bookings across India

The sales of the passenger vehicle industry, particularly utility vehicles, were just about beginning to accelerate for FY2016-17 when the Government of India delivered a speed-breaker on November 8. It announced demonetisation of Rs 500 and Rs 1,000 currency notes.

Rough estimates show, carmakers in India have seen a decline in bookings, and enquiries have stopped translating into sales following the announcement. Though the passenger car market is not marked by cash sales with 70-80 percent of payments made through financing and debit and credit cards, the impact of demonetisation is palpable. Overall, market sentiment is down with customers rejigging their priorities with cash not available readily.
Honda Cars India has witnessed more than 30 percent dip in footfalls at its dealerships this month, which has affected sales across the board. Jnaneswar Sen, senior VP (sales and marketing), Honda Cars India said December sales numbers could be different with the currency crunch easing. That would push up sales and enable carmakers to achieve this fiscal’s sales targets.

Meanwhile, Toyota Kirloskar Motor has experienced slowdown of deliveries though no cancellations have been reported. The carmaker has witnessed 10-15 percent dip in enquiries and walk-ins in the past week. N. Raja, director and senior vice-president, Toyota Kirloskar Motor, maintains that if the situation recovers in the coming weeks, meeting fiscal targets for the fiscal would be possible.

Auto industry body Society of Indian Automobile Manufacturers (SIAM) feels the subdued market sentiments could continue for another couple of months which would severely impact the financial targets of four-wheeler companies in the short-term. Vishnu Mathur, director general of SIAM, said that people were more concerned about getting money rather than spending it.

This trend will continue for another couple of months till the liquidity crunch eases. Since 80 percent of four-wheeler sales in India occur through bank financing and 20 percent in the form of upfront payments, or through cheques, many customers will be unable to do so seeing the pressure that banks are currently under.

No more cash down in rural India

The scenario in rural India could be worse compared to urban India. In non-urban centres, RTOs that accept road tax for new registration of vehicles in the form of cash have put a lid on it as car purchases have become discretionary. People are visiting showrooms but not making any bookings. This has seen some car companies offering 100 percent funding options to woo customers.

Entry-level bikes to feel the heat

In the case of two-wheelers, where payment is mostly in cash in rural markets, sales would be more impacted by the end of the fiscal. According to ratings agency ICRA, demonetisation is expected to have a moderate adverse impact on domestic two-wheeler sales volumes in the near term. Rural markets account for 60 percent to 65 percent of the entry-segment motorcycle sales which will be affected given the high propensity for cash purchases.

Though favourable monsoons have been a significant trigger for healthy demand from the rural markets during the current fiscal, most of the sales have been sentiment-driven, given that the kharif crop sales commenced in October/November. However, the ban on high denomination notes and the consequent constrained liquidity may result in dip or delay in realisation of crop sales, thereby leading to low demand for such vehicles.

However, ICRA believes that the adverse impact is likely to be a short-term one. With strong structural factors and demand drivers, the two-wheeler volumes are likely to revive in the forthcoming months.