Vehicle retailing in India declined more than 30% in April, registration data showed, and is expected to fall to just a quarter of May 2019 figures this month.
Sales of more than half a million light vehicles, including cars and SUVs, over a million motorcycles and scooters, and tens of thousands of trucks are at risk due to localised lockdowns and mobility curbs enforced by states to tame the second Covid-19 wave.
Leading research and sales forecasting agencies have revised downward their unit sales estimates for FY22 by 5-10 percentage points. They believe business lost in April and May would be hard to recover through the latter half of the year, especially as the world battles a shortage of semiconductors that drive new-age cars.
Vehicle retailing in India declined more than 30% in April, registration data showed, and is expected to fall to just a quarter of May 2019 figures this month. Revised FY22 forecasts show that passenger vehicle (PV) sales could be in the region of 3.1-3.3 million units, and two-wheeler sales at 16.3-17.1 million.
These forecasts do not factor in a third wave of Covid-19.
“The impact would be majorly seen in the first quarter of FY22, although with the pace of vaccination picking up, we estimate a slow normalisation of demand by the end of the second quarter,” said Hetal Gandhi, director, Crisil Research.
The agency has slashed its growth forecast for both PVs and two-wheelers by 700-900 basis points to 14-19% and 8-13%, respectively. One basis point is 0.01%.
Unlike the first wave, the second wave has hit deeper into the rural heartland and caused many more deaths, eroding the purchasing power of many families that lost breadwinners. Rural distress could severely hit two-wheeler sales, particularly those of entry-level bikes. In FY21, bike and scooter sales declined 13% to 15.1 million units while PV sales declined 2.3% to 2.7 million units.
“As the reopening of colleges and offices gets delayed until the end of the Covid-19 wave, two-wheeler demand could remain subdued in the near term,” said Shruti Saboo, associate director, India Ratings and Research. “The second wave has affected semi-urban and rural areas as well, which are major drivers of two-wheelers sales, thus impacting overall demand.”
India Ratings has not reduced its sales forecast yet, but its estimates are in line with the revised estimates at other agencies.
Supply Chain Broken
As states have enforced localised lockdowns, the unlocking will also likely be staggered, potentially disrupting the complex automotive supply chain.
The supply chain in Maharashtra was hurt with the sudden rise in Covid-19 cases in the first fortnight of April, while NCR was crippled two weeks later when Delhi was reporting both high caseloads and fatalities. The pandemic situation is now the worst in southern India, another major auto hub for both original equipment manufacturers (OEMs) and vendors.
Furthermore, unlike last year, dedicated fiscal and monetary support and incentives for the industry – and its entire value chain – might well be missing.
The impact on sales of commercial vehicles (CV) will vary. The medium and heavy CV segment should benefit from the government’s infrastructure push, but demand for light cargo carriers could be hit more due to tepid last-mile consumption, said Shamsher Dewan, vice-president and group head, ICRA.
Fresh industry projections peg CV sales between 688,000 and 751,000 units for the fiscal. About 569,000 units were sold in FY21, fewer than in FY11.
Buses continue to be the most affected class of vehicles, with schools and offices shut. Public transport units have also been light shoppers lately due to the heavy strain on state finances, Dewan said.
Sales forecasting firm LMC Automotive, which tracks the sales of ‘light vehicles’ that include PVs and light CVs weighing up to 6 tonnes, has cut its calendar year 2021 forecast by 11%, or 481,000 units.
“Even though the regional containment measures are not expected to have as big an economic impact as that of the nationwide lockdown last year, there is no doubt that the latest outbreak and restrictions will undermine consumer willingness and ability to buy new vehicles,” said Ammar Master, senior manager, Asia Pacific vehicle forecasts, LMC. “These lockdowns also threaten jobs and personal incomes.”