Demonetisation adversely impacted the sale of automobiles in the month of November and this situation is not likely to improve over the next three-four months. The two-wheeler segment was worst hit as showroom footfalls fell by up to 60%, with the result that the scooter segment that has been growing at double digit levels for a long period of time, “saw a contraction to the tune of about 2 percent in November” says the report by Emerging Markets Automotive Advisors (EMMAAA). Both the market leader Honda, which controls over half of the scooter market, as well as the rival Hero MotoCorp felt the heat of demonetisation quite significantly. “November was also a rolling disaster for the volume motorcycle (less than 125 cc) segment,” says the report, with the sales of market leader Hero dipping significantly by over 11%. Rival Honda did worse with dispatches down by over 23%.
Showroom footfalls also saw significant reduction, ranging from 20% to 40% for many passenger car brands. Certain car makers like Mahindra were impacted more than others as large part of their sales come from rural geography, where cash transaction has been a norm. The observed decrease in showroom footfalls and a consequent decline in auto sales have happened because people by and large were caught unawares by the government’s sudden demonetisation move, which has blocked people’s money. “Some of that money was heading towards car purchases in the near future, which would now be delayed by several months, a scenario that has really unnerved many auto makers,” says Deepesh Rathore, an auto analyst with EMMAAA. The priority for consumers right now is to hoard as much cash as possible and postpone almost all their discretionary spends.
The only silver lining in relation to passenger vehicles dispatches came from the utility vehicle segment, which saw a growth of 10%, while the passenger car segment stayed almost flat, and the van segment sales declined in November. Analysts do not expect exports to substitute for falling domestic sales. “Some leading brands including Maruti-Suzuki, Hyundai, Renault and Tata Motors were cushioned from the impact of reduced footfalls by long waiting periods on leading models,” says Rathore. So even if the demand goes down in the near-term, the existing waiting lists would support their dispatch volumes.