The second wave’s impact on auto sales: Major players see decline in monthly sales

Automakers foresee challenges to supply chain, dealership activity and customer movement in the coming months.

By:Updated: May 03, 2021 5:06 PM

A personal vehicle, it is argued, is usually a discretionary purchase—it’s a ‘want’, not a ‘need’. Consumers delay such purchases if the general sentiment is weak. “Indian consumers, even during a normal economy, can delay vehicle purchases for months, waiting for discounts,” said Gaurav Vangaal, associate director, IHS Markit. “These are anyway extraordinary times.”

In April 2021, hit by the Covid-19 second wave, wholesale despatches of automobiles have gotten impacted, with most automakers reporting a decline compared to March (sales growth cannot be compared year-on-year because a nationwide lockdown was in effect in April 2020). According to yesterday’s report in FE, while companies say the demand for vehicles remains strong, they foresee challenges to supply chain, dealership activity and customer movement in the coming months, given the localised restrictions imposed by states in the wake of the second wave.

Passenger vehicles

As far as PVs are concerned, Maruti Suzuki registered sales of 1,35,879 units in April, a decline of 7% compared to March (1,46,203 units), and Hyundai India sold 49,002 units in April, a decline of 6.8% over March (52,600). Tata Motors sold 25,095 units (down by 15.4%); Kia India sold 16,111 units (down by 15.6%); and Toyota Kirloskar Motor sold 9,622 units (down by 35.9%).

Meanwhile, Mahindra & Mahindra and Honda Cars India were exceptions: M&M sales grew 9.5% (from 16,700 units to 18,285 units), while Honda sales grew 27.7% (from 7,103 units to 9,072 units).

Preetam Mohan Singh, senior vice-president, Automotive, Praxis Global Alliance, said automotive is a sector that is impacted by ‘sentiment’. “Buyers having money is one thing, but they usually buy a vehicle only when they feel ‘good’. If there is an element of ‘fear’, most will postpone the purchase,” he said.

Commercial vehicles

CVs have been hit particularly hard. CV sales of Tata Motors dropped from 36,955 units in March 2021 to 14,435 units in April 2021 (down by 61%). Those of Ashok Leyland dropped from 15,761 units in March to 7,961 units in April (down by 49.5%), and of VE Commercial Vehicles dropped 74.2% (from 6,221 units in March to 1,604 units in April).

“The CV industry works on ‘anticipation’, i.e. what the buyer anticipates over, let’s say, next six months or one year,” said Indermohan Singh, partner, Shardul Amarchand Mangaldas. “While the truck segment, linked to movement of goods, may not get severely impacted, the buses sub-segment depends upon reopening of schools, inter-state travel, tourism and industrial activity (for ferrying office staff), and it will get negatively affected for sure.”

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. “Sales of buses, already at historical lows, will take a major hit; schools are closed [February to July traditionally is the period when schools buy buses] and tourism has once again come to a halt—these are the two major segments that contribute to sales of buses,” Mohan Singh said. “M&HCVs may have a moderate impact, because the government has not yet closed the economy and transportation of goods is anyway needed. LCVs may not be impacted because these cater to last-mile connectivity, especially of FMCGs and perishables.”

Two-wheelers

While Honda Motorcycle & Scooter India (HMSI) and TVS Motor hadn’t released sales numbers for April 2021 till the filing of this story, the biggest player Hero MotoCorp registered month-on-month decline of 37% in wholesale numbers in April (3,42,614 units); it had sold 5,44,340 units in March. Royal Enfield sales dropped from 60,173 units in March to 48,789 units in April, while those of Suzuki Motorcycle India grew 6.1% from 60,222 units to 63,879 units.

Singh said there could be production constraints in two-wheeler manufacturing in particular. “With Maharashtra and some southern states under partial lockdown—where a lot of component makers are located—this might impact supplies,” he added.

The recent Emkay Global report noted that CV volumes are likely to remain under pressure for some time. “Transporters are holding back orders till there is clarity on easing of lockdowns. Also, two-wheeler volumes are expected to be weak, as lockdowns resulted in loss of student demand and subdued festive season.”

A report by Motilal Oswal noted that unlike the first wave, the second wave would see limited benefit from pent-up demand. “As per dealers, after the first lockdown, sales were driven by pent-up demand on account of the wedding season, good rabi harvest and non-availability of public transport. Demand was further supported by cash in the market as well as low number of cases. However, people have lesser savings amid the second wave, as a consequence of slow economic activity in FY21, minimal cash inflow from migrant relatives and high medical bills. Therefore, at the current rate of increase in Covid-19 cases, recovery is expected to be more back-ended.”

Overall, analysts argue that the impact of the second wave on the auto sector may be substantial, although it’s too early to quantify that impact. “Once the second wave subsides, there could be a third wave as well,” Mohan Singh added. So, the impact on auto sales might last through this calendar year.

 

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