CHENNAI: Increased cost of ownership, high base effect and lower disposable incomes pushed car sales growth to just 1.3% during 2015-20, a dip from 6% in the preceding five-year period. Compounded sales growth of cars and sports utility vehicles between 2005-10 was 13%, which slowed to 6% in the next five-year block, and further slowing to just 1.3% now.
But one of the big reasons for the drop is the slowdown in economic growth. “The pace of growth for the passenger vehicle segment was high in the 2000-2010 period due to strong economic growth, new model launches and reduction in excise duty in 2005-06. After that, growth slowed due to moderation in economic growth and increase in cost of ownership due to high fuel cost in 2012-13. Since 2015, sales have been impacted due to regulatory norms and demonetisation, among other factors,” said Crisil director Research Hetal Gandhi.
Of course, a sharp slowdown in previous year and the pandemic this year has slowed down momentum. “The growth pace tapered off from 2012 onwards and has since then stayed range-bound because it is a reflection of the performance of the economy and the resultant consumer sentiment,” said ICRA VP Ashish Modani.
What has also impacted new car buyers is the expansion of the used car market. “A significant growth in the pre-owned car market has offered a new value proposition. As the car park grows and consumer buying behaviour changes, there is bound to be an impact on overall volume growth,” said E&Y head (auto sector) Vinnay Raghunath.
Some feel that increasing cost of ownership has spooked sales growth. “Cost of ownership has been going up sharply due to regulatory changes (BS4, BS6 emission norms), taxes, insurance, road tax and increase in material costs. In the last 10 years, there has been a 60% increase in on-road price of cars and SUVs due to this cost pile-up,” said Maruti Suzuki India executive director (marketing & sales) Shashank Srivastava.
A premium hatchback car with an ex-showroom price tag of just over Rs 5 lakh in 2010 and below Rs 6 lakh after road tax and insurance now costs Rs 9.55 lakh on road.
Finally, despite the slowdown, India is still one of the few big auto markets still on the growth lane. “The base effect is of course one reason why the CAGR (compounded annual growth rate) has slowed down, but the good news is apart from last year (slowdown) and this year (pandemic),” said BMW Group CEO Vikram Pawah.