Robust auto sales boost economy: After subdued domestic automobile sales in December, post the robust festive car purchases seen during Diwali last year, India’s automotive market has yet again regained its tag of the world’s third-largest automobile market and logged healthy sales numbers for January 2024. 

The Federation of Automobile Dealers Associations (FADA) which released its January sales numbers for January said the auto retail market in January 2024 witnessed significant growth across all vehicle categories, marking a positive start to the year with an overall expansion of 15 per cent. Will FADA’s January auto sales, released a day after the country recorded a fall in headline inflation and healthy employment data be a shot in the arm for the auto sector in 2024? Republic Business takes a deep dive. 

Growth drivers 

Balancing growth signals and navigating challenges ahead of February 2024, presents a multi-faceted outlook for Indian auto retail. While dealers anticipate growth, it is crucial to acknowledge the prevailing challenges that require close navigation such as factors promoting growth and demand. 

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The ongoing marriage season and anticipated income from agricultural sales provide a positive foundation for continued consumer spending, supporting growth in the two-wheeler segment, and new launch momentum is leading to increased vehicle availability and successful new model introductions across all segments hold the potential to stimulate market demand. 

The favourable post-Union Budget policies are expected to drive growth in the CV sector, particularly within infrastructure-related industries.  

SUV demand, along with the introduction of new models, greater availability, effective marketing, consumer schemes, and the auspicious wedding season, underpinned this strong performance. However, despite this achievement, 

Non-urban centers at the forefront 

Leading the auto sales surge were two-wheelers with a notable 15 per cent growth, followed closely by three-wheelers at 37 per cent, passenger vehicles (PV) at 13 per cent, tractors at 21 per cent, and commercial vehicles (CV) showing a modest 0.1 per cent increase, revealed the FADA data. 

“The demand for two-wheelers remained resilient, driven primarily by the ongoing strength in the rural market. This segment is poised to benefit from the government's positive crop production forecasts and continued support for rural economic growth,” said the report, adding that demand for two-wheelers remains steady, fuelled by continued strength in the rural market. 

Tractor sales rebounded positively following a period of slowdown in previous months. This resurgence can be attributed to expectations of a favorable Rabi crop output and conducive weather conditions for wheat cultivation, it said. 

“This segment is likely to benefit from the government's good crop production estimates and continued support for the rural economy. The passenger vehicle segment achieved a new all-time high in January, retailing 3,93,250 vehicles and surpassing the previous record set in November 2023,” said the report. 

However, a persistent concern lies in high inventory levels, which still hover in the 50-55-day range, posing a challenge for auto dealers. Tractor sales saw a positive uptick after a slowdown in previous months, likely driven by anticipation of a good Rabi crop output and favourable weather conditions for wheat cultivation, the automotive industry lobby report further said.  

Industry-wide growth

January marked a historic milestone for the passenger vehicle segment, with retail sales reaching an unprecedented 3,93,250 vehicles, surpassing the previous record set in November 2023, revealed the FADA sales report.  

Despite this achievement, concerns persist regarding high inventory levels, which continue to hover between 50-55 days, posing challenges for auto dealers, according to the FADA report. The month of January saw strong growth across all vehicle categories, with the overall auto retail market expanding by 15 per cent. 

Commenting on auto retail sales, FADA President Manish Raj Singhania said, “January 2024 began on a promising note for the calendar year, demonstrating 15 percent overall retail growth compared to the previous year. All vehicle categories – two-wheelers, three-wheelers, passenger vehicles, tractors, and CVs– achieved positive YoY growth of 15 per cent, 37 per cent, 13 per cent, 21 per cent, and 0.1 per cent respectively,” Singhania said. 

Several positive trends in the two-wheeler market signalled a robust start to the year on the back of improved vehicle availability, due to adjustments post-OBD 2 norm implementation, the introduction of new models, and a shift towards premium options all contributed to increased demand, said FADA in its report. 

“OBD 2 norm implementation combined with a good harvest, a positive marriage season, and effective follow-ups and offers, indicate a favourable trajectory for the 2W sector. Furthermore, despite supply shortages, increased interest in electric vehicles highlights evolving consumer preferences within this segment,” said the report. 

Cautious optimism for CVs

The commercial vehicle segment might experience a slight demand taper in the fourth quarter due to a high base effect and upcoming elections. However, long-term fundamentals remain positive, with expectations of a post-election rebound as underlying industries resume tender processes.

The three-wheeler sector revealed a mixed landscape, the report said. While growth and optimism continue within the commercial three-wheeler market, intensified competition from electric models underscores a significant market shift – now 55 per cent electrified. 

“January 2024 presented a complex scenario for the CV segment, demonstrating limited YoY growth. On one hand, increased infrastructure development, port activity, and positive crop yields fuelled certain market segments. However, this momentum was hindered by extreme weather, tightened liquidity, high vehicle costs, and more restricted financing,” the report stated. 

A record-breaking month, the PV segment achieved all-time high retail sales of 3,93,250 units and impressive 13 per cent per cent YoY growth. Serious concerns remain regarding PV inventory levels, now in the 50- 55 day range. This calls for an immediate recalibration of production from OEMs to better align with actual market demand and avoid future oversupply issues. As adaptability is crucial in this dynamic industry, OEMs must balance innovation with strategic production planning to ensure sustained success and overall market stability," the FADA sales report added.