Last year, due to a reduction in the Goods and Services Tax (GST) rates, the festive season saw a huge jump in the number of car buyers in the country, which led to the sale of passenger vehicles touching nearly 5 lakh. This year, it may be a bit difficult for car manufacturers to reach that high. There is a reason for this too. This time they won’t get the benefit of the price cut that helped boost sales last time. Launching new vehicles, offering more discounts and keeping more stock at dealers – all these efforts are being made, but high vehicle prices may force buyers to do calculations instead of deciding to buy a vehicle. Some people may choose a cheaper model, while others may buy an older car or postpone the plan to buy a car.
Sales may decline
The affordability challenge is already visible in the SUV market, where companies are offering more discounts to attract customers during the festive season. But these offers may not be enough to allay buyers’ concerns, especially when they think about down-payments, EMIs and vehicle ownership costs. The biggest question for dealers is whether the people inquiring into the showroom will actually buy the car. Automobile dealer Vikesh Gulati said in an ET report that a price hike ahead of Navratri could dampen enthusiasm. This can put off customers and delay purchases.
He further said that the biggest challenge is the lack of synergy between demand and supply. There is aggressiveness towards retailing, but no desperation to sell at any cost. Dealers have more stock of vehicles before the festive season. Due to excess stock, they meet the sudden increased demand, but without sales their working capital remains stuck in vehicles. If retail sales do not perform as expected, the pressure to offer discounts may increase. According to Federation of Automobile Dealers Association (FADA) president Sai Girdhar, dealers are better prepared this year.
Affordability is important for buyers
Converting this preparation into sales depends on consumer demand, especially since high prices may deter some buyers from purchasing. Companies are providing booking information and strengthening product and dealer networks. But it is not yet clear how many potential buyers will actually buy the car and how many will bargain more, opt for cheaper models or postpone upgrading plans.
An executive of a major car manufacturing company said in a media report that the market is showing early signs of slowdown and uncertainty. He expressed concern about demand and profitability due to the rising cost of raw materials. Budget or price is becoming an important consideration for buyers. People who are buying a car for the first time have to take care of down payment and EMI as well as other household expenses.
Ravi Bhatia, president of Jato Dynamics, said in an ET report that existing car owners can use the value of their old car to buy a new car, while others can consider lower-priced models or the used car market. Bhatia said that after GST, around 5 lakh vehicles were sold during the festive season last year. Companies are bringing more products and better offers this year, but the buyer’s calculations are different.
