Mixed outlook: Chip shortage to hit car sales in festive season

Retail auto sales drop 5.27% on a low base pulled down by two-wheelers & tractors; sharper 14% decline compared to 2019

By:October 8, 2021 6:33 AM
FADA

Retail auto sales during the festive season, which began from Thursday, will be a mixed one as dealers have increased their inventory in the two-wheeler category, but inventory for passenger vehicles (PVs) at 15-20 days, is at the lowest during this fiscal due to the ongoing semiconductor shortage. Normally, dealers stock huge inventories, of more than a month during the festival months.

The chip shortage is expected to continue for the next two quarters as a result of which PV sales is likely to stagnate going ahead. This is despite the fact that some manufacturers are planning new launches as consumers look forward to booking new models this time of the year. The demand for PVs is high but due to supply-side problems, the waiting list for popular models is only expected to grow further.

As far as retail sales during September are concerned, data released by the Federation of Automobile Dealers Associations (Fada) showed improvement across most categories, barring two-wheelers and tractors, which led to a year-on-year decline of 5.27% on an overall basis. During August, retail sales had clocked an overall growth of 14.8%. When compared to 2019, overall sales were down 14%. The year 2019 was a bad year for auto sales but since it was a pre-Covid year, it has become a benchmark for measuring whether sales have returned to what they were in a normal year.

In the two-wheeler space, though dealers have stocked well ahead of the festival season with inventories running to 30-35 days, the demand for entry-level models is yet to pick up. This is because the segment which opts for entry-level products faced maximum income loss during the second wave of Covid-19. An added worry for the dealers now is that the semiconductor shortage has started impacting the 150+ cc segment also. So far, only the higher-end models were impacted due to chip shortage.

The good part is that the commercial vehicle segment has finally started showing improvement on a steady basis as all sub-categories showed growth during September on a year-on-year basis. The medium commercial vehicles for the first time registered higher growth than in September 2019.

According to Fada’s data, two-wheeler sales during September stood at 9,14,621 units, down 11.54% from the same month last year. Similarly, tractor retail sales declined by 23.85% to 52,896 units compared to the year-ago period. PV sales at 2,33,308 units were up 16.32% and commercial vehicle retails increased by 46.64% to 58,820 units.

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