GST effect: passenger vehicle sales drop in June

GST effect: passenger vehicle sales drop in June

10th Jul 2017 6:45 pm

GST-driven stock rationalisation sees June sales declining 11 percent in June, slowest since May 2013.

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With predictions of reduced pricing of passenger vehicles following implementation of GST from July 1, customers in India experienced considerable confusion as regards their purchase decisions in June, in lieu of benefitting from the tax cut on most vehicles effected by the country’s biggest-ever tax reform.

For many vehicle manufacturers, all of June went into stock rationalisation, especially at the dealer end, with most dealers focussing on liquidating their existing inventory so as to not carry it forward into July. The key reasons for this was the upcoming drop in prices and a very grim clause from the government to credit only the excise duty paid on all vehicles procured before July 1, and not the entire tax and associated cess being subsumed under GST, which add up to 6-7 percent in addition of the excise.

As a result, dealers resorted to not placing a high level of fresh orders to automakers, bringing down the June wholesale numbers to 1,98,399 units, a substantial 11.21 percent year-on-year drop, making it the slowest month sales since May 2013, when due to the economic slowdown and rising fuel prices, overall passenger vehicle numbers were down by 11.24 percent. The next biggest decline was, not surprisingly, in December 2016 when the sales speed bump in the form of demonetisation saw sales slow down to 8.14 percent.

In comparison, retail sales were substantially better at 15-20 percent higher than in June 2016. This was because carmakers passed on discounts in anticipation of a slowdown in purchases. Discounts were also offered in order to clear off dealer shelves and make way for more stock movement from automakers.

According to Dr Pawan Goenka, managing director, Mahindra & Mahindra, in a GST-related media conference on July 6, "With maximum stocks being liquidated in June, dealers are now sitting on an inventory lower than the industry average of 4-6 weeks. There is a shortage of around a week’s inventory at the dealership level. There should be an inventory refill in the short term, going up to the month of August, after which the stock situation will be back to normal."

A closer look at the individual company stats reveals red ink on 13 out of the 16 passenger vehicle manufacturers. The only three carmakers that witnessed sales growth are Maruti Suzuki India (93,057 units/up 1 percent), Honda Cars India (12,804 units/up 12.25 percent) and Skoda Auto India (1,018  units/up 1.60 percent).

Even Hyundai Motor India, the No. 2 player after Maruti, saw its sales decline 5.64 percent to 37,562 units while Mahindra & Mahindra saw its June numbers drop 5.27 percent to 16,169 units. And Tata Motors saw its June numbers drop 12.19 percent to 13,148 units. Of the 16 automakers, only five logged sales of over 10,000 units last month and two over 5,000 units.

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