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Business News/ Auto News / Localized lockdowns, climbing covid cases may put brakes on auto industry
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Localized lockdowns, climbing covid cases may put brakes on auto industry

An exodus of migrant labour, caused by lockdown measures in different parts of the state, could hit production and pull-down sales

After two consecutive years of double-digit decline in vehicle sales, auto sector was expecting a hefty jump in profits in FY22. (Photo: Bloomberg)Premium
After two consecutive years of double-digit decline in vehicle sales, auto sector was expecting a hefty jump in profits in FY22. (Photo: Bloomberg)

NEW DELHI : An anticipated revival in demand for passenger vehicles and two-wheelers this fiscal could be hit by pandemic-induced restrictions in Maharashtra and other supply-chain issues.

Automakers, parts suppliers and dealers, especially of passenger vehicles, were expecting demand to bounce back to FY19 levels when the industry saw the highest-ever production and sales. But an exodus of migrant labour, caused by lockdown measures in different parts of the state, could hit production and pull-down sales.

Dealers are also expecting footfalls in showrooms to decline substantially due to the surge in covid cases.

Passenger vehicle makers and their suppliers were aiming to produce around 4 million vehicles in FY22 on the back of strong retail demand in the last six months, according to three executives in as many auto parts makers.

According to one of them, his Haryana-based company’s internal estimate for FY22 was 4 million vehicles, including for exports. But the resurgence in covid cases and lockdown in Maharashtra might impact production as the supply chain is interconnected, he feared,

“Most companies have not yet announced any cut in production since retail demand is still better than expected, with high waiting period on certain products, but this second wave will impact production and demand in the next few months. Even without a lockdown, curfew impacts the supply of materials, and that creates disruption. Migrant labourers also can’t be replaced overnight," the person said, requesting anonymity.

After two consecutive years of double-digit decline in vehicle sales due to the economic slowdown and the pandemic, auto dealers and suppliers were expecting a hefty jump in revenues and profits in FY22. Sales were expected to rise from the low base of FY21, with the economy projected to recover and consumers moving to personal mobility.

“We are getting the warning signs again as customer walk-ins have dropped precipitously. April is a festive month, and we expect good retail during this period. But this year, footfalls have again declined by 50% from our expectations," said a dealer of Maruti Suzuki in Hyderabad.

He added that Maruti has been supportive from last year, but with another big drop in sales, dealers will have all their money invested in inventories, while the industry might end up with only a modest increase in volume.

The third executive said production in Maharashtra has already been impacted and might even spill over to other states, given that covid cases this time are double those of last year. “If this situation continues for two months and lockdown measures are imposed around hubs like Chennai and Manesar, then we might lose all hope of good recovery. Most manufacturers are concerned about demand also. We have invested this year considering the recovery, and most automakers have asked us to stock up to avoid disruption. That way, we will lose money again if production gets hit," the person added.

According to credit ratings firm ICRA, the passenger vehicle industry is expected to post an impressive growth of 22-25% for FY22 after a 2-4% decline in FY21. Another ratings firm, Crisil, estimated revenues of dealers and component manufacturers to increase by more than 20% due to high demand during the year.

“We have seen OEMs, suppliers and dealers have shown excellent collaboration in the last year and have got tuned to the new virtual world through digitization techniques. Hence, demand may not be impacted much. However, there may be supply-chain disruptions that can’t be ruled out, especially in states like Maharashtra or others where lockdowns may be stricter," said Puneet Gupta, director, IHS Markit.

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Published: 15 Apr 2021, 05:25 AM IST
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