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MUMBAI : There might be less than expected rebound in sales for domestic two-wheeler and passenger vehicle manufacturers during the upcoming festive season as increased prices of products and high fuel prices might impact customer sentiment.

Limited supply of vehicles at dealerships because of semi-conductor shortage will also constrain the ability of automakers to supply vehicles at a time when demand is gradually recovering. Most automakers have reduced vehicle output to cope with the shortage in semiconductor supply and some might also consider temporary shutdowns of factories.

Maruti Suzuki India Ltd, the country’s largest carmaker, announced its third round of price increase in this calendar year to offset the impact of rise in commodity prices. Other automakers in the segment are expected to follow suit as most of them follow the market leader when it comes to hiking prices of offerings.

Increased pressure of commodity prices has impacted operating performance of automakers across categories in FY21. This, coupled with disruption in production caused by acute shortage of semi-conductors, will further impact the profitability of vehicle manufacturers in the current fiscal.

Vehicle demand has improved compared with the last few months since bookings and inquiries have also gone up sequentially, according to Shashank Srivastava, senior executive director, marketing and sales, Maruti Suzuki. The company’s vehicle sales are still 20-22% down from the FY 18-19 levels.

“Increase in fuel prices does have a negative impact on consumer sentiment for car demand. Irrespective of the last couple of reductions, fuel prices are at a high level. We have the CNG option and the running cost is really low. So, unlike petrol and diesel where the running cost is 4.50 per kilometre, the same for CNG is 1.60 paise," Srivastava said.

Maruti’s management could not increase prices despite substantial rise in commodity prices since April 2020 as demand was impacted by the second wave of covid infections, which made passing on the entire increase in commodity costs impossible, he said.

Most passenger vehicle (PV) makers did not have much inventory at dealerships when lockdowns were imposed in April to contain a second wave of covid infections, because of gradual improvement in sales and production constraints. Hence, most had plans to ramp up manufacturing substantially from June to build adequate inventory before the festive season.

Most passenger vehicle (PV) makers did not have much inventory at dealerships when lockdowns were imposed in April to contain a second wave of covid infections, because of gradual improvement in sales and production constraints, according to a report of brokerage firm Emkay Global. Passenger vehicle production is likely to be more affected than the production of two-wheelers and commercial vehicles.

“Semiconductors are used in powertrain, chassis, safety, convenience, advanced driver assistance systems, and infotainment. For mass-market PVs, the chip content stands at $40-50 per vehicle, which is higher in comparison with 2Ws (two-wheelers) and CVs (commercial vehicles). Considering higher content, supply issues would be higher in PVs, especially in premium categories," the report said.

Last year, auto manufacturers had witnessed a sharp increase in vehicle sales during the festive season after restrictions put in place to contain the first wave of the covid pandemic were lifted. Similar recovery was expected in the current fiscal as well but factors such as increase in vehicle and fuel prices and production constraints might delay the recovery. “While there is hope that semi-conductor supplies would improve in H2FY22, OEMs and vendors are currently living by the day," analysts of Motilal Oswal Institutional Equities said in a note.

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