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With high August sales, has Indian auto sector entered the fast lane?

As the pandemic subsided and semiconductor supplies moved closer to normal, passenger car production and sales in India gained momentum. And it soared to new levels in August, year over year.

Led by SUVs, sales could hit another high during the upcoming holiday season. Monthly sales data released last week showed shipments at the seven largest passenger car manufacturers rose 30.2 percent year-on-year to 3,05,744 units, from 2,34,743 units.

With the exception of May, when growth was driven by a low-base effect, it was the strongest year-on-year growth in FY23. Auto companies count shipments to dealerships as sales.

Shashank Srivastava, the executive director – sales at Maruti Suzuki, expects the industry to close FY23 with a record 3.7 million units, which would be nearly 21 percent more than FY22. It is clear that the industry is in the midst of a growth in passenger car sales that is likely to continue in the coming months.

Maruti’s shipments in August in India were up 30 percent from the corresponding month a year ago. According to Srivastava, the growth trend appeared to be strong, but future performance would be determined by how production diverges from underlying demand. He warned that while the chip shortage had decreased significantly, some uncertainties still existed, particularly for specific models. Until last week, pending bookings at Maruti Suzuki stood at 377,500 units. But the real question is how long can the industry expect this celebration to last?

Srivastava added that the August sales trend indicated that while the growth momentum in the SUV segment continued, it had reached a plateau for sedans.

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Tata Motors saw its PV sales continue the strong run of the previous months with a year-over-year increase of 68.3 percent in August. Mahindra and Mahindra saw continued momentum thanks to the launch of new SUVs, with sales rising 87 percent in the same month last year.

The Scorpio-N, Scorpio Classic and Bolero MaXX Pik-up models drove the volumes. Sales at Toyota Kirloskar Motor rose 17.12 percent year-on-year in August. According to a company executive, the Innova Crysta, Fortuner and Legender models witnessed unprecedented customer orders that month. The company recently said it was temporarily suspending orders for the diesel variant of Innova Crysta because demand for it was huge, leading to longer wait times.

For years, August two-wheeler sales also struggled year-on-year, although they hit a low. The increase was due to companies sending higher numbers before the holidays. In their case too, a decrease in the chip shortage led to an increase in production.

The good news in August comes after a long period of difficulties for the industry. In 2017, things started to heat up for the industry. To begin with, growth was affected by the introduction of the goods and services tax. Second, just before the Covid-19 pandemic hit, the industry was concerned about the imposition of BS6 emissions standards, which would lead to higher prices for consumers and significant investment by companies in cleaner technology. The start of the pandemic came almost like the last straw on the camel’s back. Factories, showrooms and supply chains were closed overnight due to the lockdowns. Car companies had to scramble to adapt and survive. It has been a long road to recovery.

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