In a time of demonetisation, the domestic automobile industry is taking a hit and how. December 2016 saw overall industry sales slide 18 percent year on year and hit a 16-year low.
While passenger vehicle (PV) sales also took a hit (-1.36% / 227,824 units), it was the performance of the utility vehicle (UV) segment which prevented a complete washout. While passenger cars saw sales dip 8.14% to 158,617 units and van sales decline 18.76% to 10,898 units, the UV segment notched 29.94% YoY growth with sales of 58,309 units.
Even in the first nine months of FY2016-17, UV sales have saved the blushes for the PV sector. Cumulative sales of 2,243,525 units comprise 1,553,785 passenger cars (+2.46%), 133,577 vans (+1.67%) and 556,163 UVs (+32.99%). The big sales accelerators for the segment have been the Maruti Vitara Brezza, Hyundai Creta, Maruti Ertiga, Toyota Innova, Mahindra Bolero and more recently, the new Toyota Fortuner.
UV sales in India to double by 2020
With a good number of vehicle buyers in India making a shift to SUVs, UV sales are forecast to double from the 556,163 units sold in FY2015-16. In fact, UV sales statistics over the past decade reveal that sales have more than doubled since 2006-07 when 220,306 units were sold out of overall PV sales of 1,379,979 units, accounting for 15.96% of the total market. Fast forward to 2015-16, which saw 586,664 UVs sold out of 2,789,678 PVs, the UV share growing to 21%. And, in the April-December 2016 period, UV sales at 556,163 units out of 2,243,525 account for 24.80% of total PVs sold.
Speaking to Autocar Professional recently, Mark Fulthorpe, global director – Light Vehicle Production Forecast, HIS Markit Automotive, said: “We have seen a trend in India on SUVs wherein SUVs are becoming smaller and wider. Increasingly, they are being built on uni-body vehicle structures, which are also used (as platforms) in making hatchbacks and small sedans. So there is a lot of flexibility in vehicle production. This is a strong trend in India, and if this trend remains in its place then we barely see any factor that can disrupt in the next couple of vehicle cycles. So, if you can build and sell cars in India, then you can build and sell elsewhere in the world.
Also read: PV sales in India miss 3 million mark in CY2016 by 33,363 units
We expect that the SUV market in India will more than double by the end of this decade. We forecast that the SUV segment will easily cross the one-million unit mark annually. For instance, the success of Maruti Suzuki’s Vitara Brezza has taken the company’s utility vehicle portfolio to new heights. We expect that Maruti Suzuki would grow further in terms of tapping the demand of aspiring youngsters.”
Top 5 UVs in India
At the top of the UV charts is the Maruti Vitara Brezza. Clearly, there’s no stopping this sales machine which has seen surging sales right from its launch last year. Although hamstrung by capacity constraints, Maruti Suzuki India is rejigging production of other cars to accommodate demand for its first compact SUV.
At No. 2 is Hyundai Motor India’s Creta which, as an overall package, is hard to beat. It is above average in most areas and in some, it’s the class best. The styling, refinement, practicality and overall ease of use appeal to the average SUV buyer who isn’t interested in off-road ability – the Creta’s biggest weakness.
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Maruti’s Ertiga is a popular fleet and family vehicle in India. This urban MPV, based on the Swift platform, has been a game-changer for the country’s largest carmaker since its launch in 2012. Offered with a host of engine options ranging from petrol, CNG and diesel variants, and more recently an SHVS mild hybrid variant, the Ertiga is a consistent high seller.
Mahindra & Mahindra’s warhorse, the Bolero, is another high seller. However, expect this UV to come under pressure in the coming months mainly because of the demonetisation-caused cash crunch in rural India.
Toyota Kirloskar Motor’s Innova Crysta completes the Top 5. The Innova has always been a big selling UV and with the new Crysta, Toyota has not only enhanced the Innova's core strengths of space, comfort, practicality and quality but has addressed its key weaknesses too. It's no longer underpowered or under-equipped, and it looks very modern too. For those who want a luxury MPV to carry friends and family around in comfort, there is no better choice.
India PV sales to be under pressure in Q1 2017
Commenting on the impact of demonetisation in the Indian market, Fulthorpe says: “Our initial thought is that there will be a disruption in the first quarter of CY2017; we expect 100,000–120,000 units of sales lost in the Indian marketplace.
We have carried out the impact of demonetisation in terms of absolute volume adjustments in our original forecast for the Indian light vehicle production for CY2017.
Our production forecast ahead of demonetisation was 4.40 million units of light vehicles in CY2017 for India. However, we are now expecting around 4.30 million units or 4.28 million units of light vehicle production in India in CY2017.
So, we expect that the impact would be felt most in Q1 CY2017 and then the market will start to normalise thereafter. Part of that is built on the idea of what happens in the urban and the rural markets.
Even after taking demonetisation into account, we are still expecting production topline to grow by about 5 percent in CY2017 over CY2016. The direction, clearly, is still positive.”
The full interview with IHS Markit Automotive’s Mark Fulthorpe is published in the January 15, 2017, edition of Autocar Professional. Subscribe to our magazine to get exclusive news, features and analysis.