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BW Businessworld

November Nirvana

The worst may be behind for the Indian auto industry due to the festive season offtake but the ecosystem needs to stabilise before demand can get back to pre-2018 levels

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The Indian Automotive sector has witnessed its worst nightmare since the financial meltdown of 2008. A prolonged slowdown in the economy over the past two years brought on by a severe liquidity crunch due to the crisis in the NBFC sector and reluctance of the banks to lend owing to a dramatic rise in bad loans, the impending migration to BS-VI emission norms and, f inally, the Covid-19 pandemic pulverised demand out of shape. And with the nationwide lockdown in April this year, sales turned zero!

Could things get any more worse for the sector that accounts for a sizeable 7.5 per cent chunk of the country's GDP?

In fact, the pandemic that caused sales to hit rock bottom has brought in new demand as well. With social distancing and the fear of contracting the virus at the top of everyone's mind, the demand for personal mobility has gone up. As a result, there has seen a stronger than anticipated growth in demand after the Unlock. Brokerage firms have now turned bullish on the sector. Here's is why.

The Society of Indian Automobile Manufacturers (SIAM) has estimated a 4.65 per cent year-onyear growth in November 2020 in the passenger segment to 264,898 units. Two-wheeler sales registered a 13.43 per cent year-on-year growth to 1.6 million units during the month.
"While the festive season brought back some fervor in specific segments, the overall economic scenario would determine the industry's performance going forward," says Rajesh Menon, Director General, SIAM. With the demand for automotives surging back to pre-Covid levels across most segments, including two-wheelers, passenger vehicles and tractors, sales have recovered on sustained rural demand and inventory build-up in the festive season. Today, the scenario depicts an encouraging picture.

Kavan Mukhtyar, Par tner & Leader - Automotive, PwC, says, "Starting from Q2, customer demand will recover gradually and sales volume might jump back to same level as the second half of 2019. Based on forecast, total new cars sales volume for 2020 are likely to drop approximately 10-15 per cent, compared with 2019."

According to a CARE Ratings report, automobile wholesale presents a mixed bag in November 2020 with two wheelers and passenger vehicles witnessing positive growth YoY. However, on a sequential basis, all segments reported negative growth.

"The automobile industry has seen one of the best recovery rates since unlocking began as November continues to see positive momentum by growing 29.32 per cent on MoM basis. On YoY basis, the negative slide continues with minus 19.29 per cent growth," says Vinkesh Gulati, President, Federation of Automobile Dealers Associations (FADA).

"With festive season now over, heavy rains in parts of the country leading to crop damage and pent-up demand being almost negligible, demand revival now solely depends on exciting yearend offers. If the supply chain issues in passenger vehicle segment is controlled, we may see continued growth in December," adds Gulati.

Auto companies are now rolling out various offers including cash discounts, extended warranty and maintenance programmes, complementary vehicle exchange offers and easy buying options in the form of leasing.

"The trend for used car leasing is rising as an attractive and often more affordable alternative amid the pandemic. There are various reasons for consumers to prefer leasing over buying a used car this festive season so as to put their festive spirit in top gear," says, Sameer Kalra, Co-founder, PumPumPum.

"Going forward, market volumes will likely improve on the back of greater economic activity and hopefully better sentiments due to Covid vaccine. Overall, it is going to be a fast changing scenario in the auto industry," says Shashank Srivastava, Executive Director (Marketing & Sales), Maruti Suzuki India.  

New product launches did bring the customers to the showrooms, For example, the Kia Sonet saw sales of 11,417 units in November whereas Honda Cars India sold 9,990 units in November as against 6,459 units in same month last year "The festive season was good for us with sales improving by 55 per cent in November and contributing to overall industry growth. With a new and refreshed line-up of models along with lucrative offers for consumers, we were able to leverage festive demand and register good sales," says Rajesh Goel, Senior Vice President and Director, Marketing & Sales, Honda Cars India.

Meanwhile, in the two-wheeler space Honda's domestic sales rose 11 per cent to 412,641 units in November this year compared to 373,283 units a year ago. Yadvinder Singh Guleria, Director - Sales & Marketing, Honda Motorcycle & Scooter India says, "If the second quarter was about stabilising the automotive ecosystem, the third quarter is a bit about recovery."

Experts from Care Ratings would want to be cautious in their analysis. "On a YoY basis, all segments, except passenger vehicles and tractors, reported negative growth in November 2020. Reaching pre-Covid levels of sales seems improbable in FY21, as consumer demand for automobi les is expected to stagnate in Q4 FY21. The festive season has nearly ended and hence, near-term demand for automobiles will depend on how quickly the economy progresses and lifts consumer incomes."