Two-wheeler segment continues to witness strong headwinds, as vehicle registration data released by FADA (Federation of Automobile Dealers Associations) shows -5.01% YoY de-growth in June 2019. Quarterly YoY figures also show a decline of -6.4%. In Q1′ 18-19, two-wheeler sales stood at 43,44,827 units, which has come down to 40,64,903 units in Q1′ 19-20. FADA has pointed out to liquidity tightness and delayed monsoon, as the two main reasons for continued downtrend in auto sector.
A troubling aspect for two-wheeler segment is that inventory has risen to alarming levels. Two-wheeler dealerships have been facing the issue of high inventory since September 2018. Average inventory for two-wheelers was 55-60 days in May 2019, which has increased to 60-65 days in June 2019.
This is three times the FADA recommended 21 days of inventory for this segment. FADA has requested two-wheeler manufacturers to regulate production and reduce wholesale billing to dealer, so that high inventory levels can be brought down.
State-wise sales data looks bleak, as most states have registered negative growth in June 2019. Among the five states that have sales of more than 1 lakh units, only one state (Bihar) has registered positive YoY growth in June 2019. Uttar Pradesh has the largest two-wheeler sales at 2,55,812 units, followed by Tamil Nadu (1,24,535), Maharashtra (1,18,453), Bihar (1,14,959) and Karnataka (1,00,087).
Apart from Bihar, other states that have registered positive YoY growth include Rajasthan (1.61%), Assam (9.65%), Manipur (67.51%), Mizoram (41.11%), Meghalaya (12.90%), Arunachal Pradesh (82.26%), Sikkim (87.43%) and Nagaland (15.56%).
A significant percentage of two-wheeler sales come from rural areas, where monsoons are an important determinant of consumer sentiments. With delayed monsoons, demand for two-wheelers remains weak in rural areas. Most consumers appear to have postponed their purchases due to delayed monsoons.
FADA also pointed out that banks and NBFCs are currently taking a cautious approach to lending, which is hampering two-wheeler sales. Many two-wheeler customers don’t have a credit history and financial institutions are currently wary of giving loans to such individuals. However, liquidity is expected to improve in the future, as the government has announced recapitalization of nationalized banks and 1 lakh crore funding for stable NBFCs. Improved liquidity will give that much-needed boost to two-wheeler sales.