The auto sector just saw one of its best months in a long, long time with a double digit growth in passenger car sales. They were not just 18% higher than they were last year, but showed six times more growth that they did, a month back.
This came in spite of the Modi government not extending excise duty sops from December last year, leading to price hikes in the midst of a sales slump. It had triggered a hue and cry from the industry which said that it will damage the demand. Auto companies were still recovering from exceptionally dull sales during the festive season in October, when the next hit came.
Were their predictions of slow sales wrong? Not completely. The urban demand seems to be on track, but rural growth which comprises of tractors and two-wheelers mostly, is still dull. With one bad monsoon behind it, and probably yet another in sight, growth in these segments seems further away.
Though their concerns are partly true, the growth that is seen is still a far cry away from the picture that automakers had painted a few months back. Urban purchasing is up, especially in entry-level cars, indicating that first-time buyers are entering the market. They are seeing their best ever monthly sales growth since 2012. Adding to the need for cheer is that the vans segment which had been performing badly for months, has turned around to show a 20% growth!
Until now, car makers have been writing off the slight growth in sales since January, as ‘not enough’ and ‘still far from recovery’. But they might find the April numbers too tough to ignore.
What has made cars attractive in spite of price hikes? Is it more launches? Partly true. Improving urban incomes? Also, partly true. The biggest push has come from softening fuel prices. In the time period between January and early April, crude oil prices hovered between $50-60 per barrel. Hence, proving the theory that purchasing a vehicle is determined not by fixed costs but the variable cost of maintaining it on a monthly basis.
If fuel prices form the major decision-making factor and if the predictions on oil prices turn out to be right, automakers could breathe easy. As inventory builds up in a major consuming market like the US and lowered demand from China, oil futures too are in the range of $60 per barrel. That would hopefully keep at least one of the most decisive factors that influences demand, steady for a while.
The growth in auto sales proves one thing - 'acche din' might not necessarily have anything to do with the man for whom the term was coined. So, maybe it is time to stop seeking for sops and pump up the promotions.