Fears of third wave cast a shadow on auto sector

It is being predicted that the fear of the third wave of Covid-19 will keep many people from buying two-wheelers and cars in the next few months. However, the CV segment might see positive growth due to the increased highway construction work and the need for last mile connectivity.

By:Updated: Jun 14, 2021 9:44 PM
Vehicle sales to be affected by fear of third wave of Covid-19

Last year, after the first lockdown, sales of passenger vehicles (PV) and two-wheelers rose at a brisk pace. As per wholesale data by the Society of Indian Automobile Manufacturers (Siam), from August to October 2020, auto sales were higher compared to the same period in 2019. Analysts FE spoke with said the shift from shared mobility to personal, low interest rates, discounts and sharp rural recovery led to that sales spike. In addition, higher government spending in the infrastructure space gave a push to the commercial vehicle (CV) segment (goods carriers).

However, this time around, after the second wave, most argue, there may not be a similar pent-up demand.

As far as PVs are concerned, Maruti Suzuki registered sales of 32,903 units in May 2021, down from 1,35,879 units in April and 1,46,203 units in March, and Hyundai India sold 25,001 units in May, down from 49,002 units in April and 52,600 units in March. Tata Motors sold 15,181 units in May (down by 39.5% month-on-month); Kia India sold 11,050 units (down by 31.4%); Mahindra sold 8,004 units (down by 56.2%); Honda Cars India sold 2,032 units (down by 77.6%); and Toyota Kirloskar Motor sold just 707 units (down by 92.7%).

While this huge sales drop can also be attributed to most carmakers announcing their annual maintenance shutdown in May, in addition to sporadic lockdowns, the coming months may not bring much cheer.

Preetam Mohan Singh, senior vice-president, Automotive, Praxis Global Alliance, said because Covid-19 spread into tier-2 cities this time leading to lesser savings for people in urban and rural India, sales of entry-level cars up to Rs 4 lakh and two-wheelers will be impacted. “But cars priced above Rs 6 lakh will continue to sell well because people in this segment are likely to utilise available cash. As lockdowns are lifted, people will start to travel again, but at the bottom of the pyramid there is a major economic impact this time,” he said. “The silver lining is that goods carriers, especially LCVs, may see rising demand because of the need for last-mile connectivity.”

Over the next few months, within CVs, analysts say the impact on buses will be substantial, on M&HCVs moderate, and on LCVs the least.
Som Kapoor, partner, Automotive Sector, EY India, said the intensity of the second wave’s impact will become clearer in about a month. “The second wave has hit closer to home,” he said. “The level of confidence people have on our medical infrastructure and with the rollout of vaccines is low, people are anticipating a third wave. Instead of buying a car, you will try to save cash.”

While he added that sales of HCVs will get better — highway construction grew by 74% in April-May 2021 to 1,470 km or 24.1 km per day — two-wheeler sales in rural areas will be negatively impacted. “Although there is a huge two-wheeler appetite in small towns and villages, because Covid-19 hit even rural areas, people may not want to open their wallets in anticipation of the third wave,” Kapoor said.

On the third wave concerns, Saket Mehra, partner, Grant Thornton Bharat, said fear surrounds consumers’ thoughts. “The sentiment would take time to pick up for people to divert their interest towards buying a vehicle. A period of subdued spending is likely till the end of July-August 2021.” He added that last year there was revenge shopping by consumers in retail, white goods and vehicles. “Auto demand rose by 10-15% during the festive season, with 40% of the demand coming from rural areas. This year, too, the demand will rise till the festive season, but rural may not contribute significantly due to increased healthcare spend during the second wave,” Mehra said. “A modest increase by 1-7% in benchmark prices of certain Kharif crops may also not encourage some parts of rural India for discretionary purchases.”

Two-wheelers, Mehra added, will experience tardy growth. “Extended plant shutdowns and reduced footfalls at dealerships have resulted in a double-digit de-growth month-on-month in the current year. Increased healthcare spend, lower penetration of mediclaim facilities and lower disposable income in the hands of people particularly in rural areas might result in slower demand recovery for two-wheelers.”

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