By Ruma Dubey

Except for Mahindra & Mahindra and Honda Motors, all the other auto sector listed companies seem to have hit a big speed breaker.  YoY, the worst seems to be Tata Motors, which showed an almost 28% drop in March sales though, MoM, it seems to have done much better with an over 17% jump. The same trend is seen in Maruti, which YoY showed a drop of 5% in March sales but MoM, has shown an increase of 9%.  In two-wheeler segment, TVS also shows the same trend – a very disappointing YoY fall but MoM, a marginal rise in sales. Except for Bajaj Auto and Hero Moto, unlike what most are concluding, it is not yet recession in the Indian auto sector.

Infact Maruti says that MoM, it was the highest sales in the last 12 months and it is of the opinion that the market has bottomed out and going ahead, we might actually start seeing a recovery.  But this would be being either too naïve or super optimistic.

The reality is indeed that the auto sector in India is slowing down and because it a mixed bag with some reporting rise in sales and some reporting fall, it would be wrong to press the panic button. Yes, it would be recession is all auto makers show a decline in sales. In March, except for M&M and Honda Motors, all are down on a YoY but sequentially, except for Bajaj Auto and Hero Moto, all are up.

The economic slowdown and high interest rates are keeping demand low. Today Maruti’s fastest selling car, Swift, which till a few months ago had a waiting period of 3-6 months is now available off the shelf. And that drives in home the point of low demand.

What is also not helping is the labour strife at many auto maker facilties. It seems to have become a recurring problem and that too is affecting production and sales. Domestically, demand is low and ditto is the case for exports. Low demand across Europe and then the unrest in Egypt and imposition of higher taxes in Sri Lanka has also affected the total sales.

All this means low demand, low sales and this in turn means pile-up of inventories. And that is the reason why today almost all vehicles are being offered at huge discounts and freebies. Many companies are stated to be carrying inventories as high as 6-7 weeks. March has been slow while traditionally, companies usually see much higher sales due to the fiscal end and  people claiming depreciation benefits. But this means auto companies expected higher demand and that did not happen which again means that inventory pile up would have increased further, which in turn means discounts could continue for a month or two more. Companies are thus selling at a loss to clear inventory and the only way to keep the topline intact is by reducing operating costs. April is seasonally a very slow month thus any major improvement in sales can happen only on May or in June. That’s also the time when the salary increases happen and that does boost sales as has been seen historically.

Yes, we could see a turnaround as interest rates come down and second half of FY14 could prove to be a much better bet.

Meanwhile, those waiting to buy a car or a two-wheeler, there could be no better time than now; prices have never been so low.