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CHENNAI: After resisting the demand skid that hit the car industry earlier this year for two quarters, two-wheeler demand has now come down sharply in October, down from 1.4 million units in September 2011 to 1.3 million units in October. Auto industry experts say this demand trend is an indication of an across-the-segment slowdown in the auto industry and a pointer towards rural demand losing speed.

Two wheeler demand held up nicely rising month-on-month till March 2011. But between March and August, it remained stuck in first gear, hovering around the 1.2 million units range. September bucked that trend only to see demand come crashing down in October. Says Venu Srinivasan, MD, TVS Motor Company: "There are definite signs of an early indication of a slowdown but the picture will become clearer once the sales numbers for November and December come in." TVS, he says, saw its festival demand curve moving forward to September and had a dull October when the company took a Diwali shutdown. "Although two-wheelers are not as impacted by interest rate hikes as cars because fewer numbers are bought with auto loans, inflation and the repeated hikes in petrol prices has hit demand sentiment," says Srinivasan.

That sentiment slip is also showing up in moped sales, the first indicator of rural disposable income. Moped sales have yo-yoed all year going up and down month-on-month from 53,268 units in January up to 61,403 in February, 64,484 in March then crashing to 59,536 in April, jumping back to 68,104 in May, down again to 64,493 in June, up to 67,169 in July, slipping back to 60,205 in August, back up to 68,963 in September and then skidding to 56,909 in October. Auto industry experts say there are some indications that the government may be cutting back on rural entitlement schemes which along with inflation has also squeezed disposable income.

The auto industry's downward slide is part of a larger picture of general slowdown say industry experts. "With exports and manufacturing slowing down, automobile demand has to be impacted strongly," says Rakesh Batra, head of Ernst & Young's automobile practice in India. "So far the rural economy was doing better as support prices were up but with inflation eating away disposable income could also be affected." However he says, tractor sales are still very buoyant so not all segments of the rural economy have started to stagnate.

India's problem is that it's slowdown comes bang in the middle of a global crisis. "The Euro zone is headed towards a recession and ditto for the US," says Batra. "China's auto figures have shown a slowdown so India cannot but feel the pinch." However, since November and December are traditionally slow months in terms of auto sales, the larger picture will emerge by early next year.

Source - Two-wheeler sales crash as rural income dips - The Economic Times