Auto companies to see steady demand growth in 2017: D&B

Growth of the auto industry is to continue in 2017 across all vehicle categories-commercial and passenger vehicles, as well as two and three-wheelers. But it is unlikely that the industry will maintain the sales growth of 2016 due to the note ban impact and the uncertainty regarding the GST, says Dun & Bradstreet in a report. 

The report, does not quantify its projection. In 2016, auto sales grew 9.2 per cent driven by two-wheelers that moved up by 9.6 pc from 0.7 per cent in 2015. At the same time, cars clipped at 7 pc and commercial vehicles grew 7.8 pc. “Improving economic growth, robust demand from rural and semi-urban markets and lower cost of  ownership have driven sales in 2016, bringing in a much-needed recovery for the industry, after growth slumped in 2015,” the report said. 

Sales will also be helped by higher replacement demand on account of the expected implementation of new emission norms and the impact of deferred purchases as a result of demonetisation, the report adds. 

But the report is quick to note that “the recovery will take at least two to three months more as consumers are still hit by the note ban. Consequently, although the mid to long term prospects look positive, given the impact of demonetisation and the uncertainty regarding the GST the industry may not sustain the growth rates achieved in 2016.” 

The positive sentiment is driven primarily by the rural and semi-urban demand for two-wheelers and cars, driven on the back of good monsoons. 

Another boost up will be the 7th pay commission that will infuse around Rs 1.02 trillion of disposable income of over 1 crore employees. Another reason is the aggressive play by the cab aggregators who are expanding their operations extensively. 

On commercial vehicles sales which recovered in 2015 with a growth of 6.3 per cent and 7.7 per cent in 2016, demand will be driven by replacement demand, construction and mining, increasing freight movement and moderation in fuel prices and firm freight rates, while increased government focus on infra sector will drive demand for specialised heavy goods vehicles such as construction trucks, mining tippers etc.   

After two years of consecutive declines, bus sales grew 15.8 per cent, it nearly halved to 8.4 per cent in 2016. In 2017, buses sales are expected to remain in positive on the back of robust demand from the private segment as also orders from state road transport undertakings. 

In a span of five years, scooter sales nearly doubled from 2.9 million in 2012 to about 5.6 million in 2016, thus, outperforming the overall two-wheeler market, consequently its share in domestic two-wheeler sales surged to 32 per cent in 2016 from 21 per cent in 2012. And the buoyant trend in the scooter segment is expected to continue into 2017. Scooter sales will be driven by inadequate public transport, increase in participation of women in workforce, implementation of the 7th pay commission awards, good monsoons, and strong demand from the semi-urban markets. 

But the report notes that 2016 saw the second consecutive year of decline in two-wheelers exports largely due to drop in demand from the key export markets of Africa and Latin America. 

Two and three-wheelers exports contracted 10.6 per cent in 2016, dragging the overall auto exports down by a negative 5.1 per cent, although commercial vehicle exports rose 12.6 per cent and passenger vehicles at 17.4 per cent. 

This year demand will come from rural markets, lower fuel prices, expected softening of interest rates, new launches and increase in discretionary spending due to the implementation of the pay commission awards.