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Business News/ Companies / News/  Automakers confident of a swift recovery after unlock
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Automakers confident of a swift recovery after unlock

Good summer harvest, pent-up demand will put sales back on track, say industry executives

Executives at top automakers expect sales to pick up from late June or July.mintPremium
Executives at top automakers expect sales to pick up from late June or July.mint

Automakers expect a quick recovery in the sale of vehicles, especially in the passenger vehicle segment, once state governments start lifting restrictions imposed to contain the spread of coronavirus with a steady decline in covid cases.

Top executives at leading vehicle manufacturers expect sales to start picking up from late June or July because of a good harvest of summer crops, which may lead to faster recovery in rural demand, pent-up demand over the past two months, good order books and a continued shift towards personal mobility.

Some executives also point at the recovery in economic activity in the third and fourth quarters of last year despite the stringent nationwide lockdown earlier in the year.

Mercedes Benz India expects a V-shaped recovery in business, but this is contingent on when the states lift restrictions, according to managing director and chief executive Martin Schwenk. Mercedes expects substantial growth over last year despite the second wave, Schwenk said.

“A lot of our customers, who are business people, did not have any visibility about recovery last year. Now, they know how businesses can come back and they have the experience (to turnaround their businesses). We have confidence in our customers and we have a good order book. The vaccine roll-out will also boost sentiment and give some visibility," added Schwenk.

Manufacturing and sales of automobiles came under pressure from the first week of April when Maharashtra announced strict lockdown measures. Delhi, Haryana, Karnataka, Tamil Nadu and others followed suit.

Maruti Suzuki India Ltd, Hero MotoCorp Ltd, Hyundai Motor India Ltd and others have either stopped production or reduced output significantly.

Some manufacturers such as Tata Motors and Bajaj Auto Ltd continued production with limited capacity. Some companies also shut down plants as deliveries have stopped and sales are expected to remain subdued for the next two months.

However, some automakers have resumed production, though with single shifts, from mid-May, following a steady decline in covid cases.

“Depending on how aggressively the vaccination programme advances in FY22, there is anticipation of a quick bounceback. That is the reason we have not looked at aggressively reducing inventory," Rakesh Sharma, executive director, Bajaj Auto, told brokerages.

The two-wheeler industry, especially the entry-level segment, is expected to witness slow recovery because of an increase in prices of vehicles as a result of the transition to BS-VI norms and a jump in international commodity prices.

The quicker recovery expected in rural areas will boost the sales of companies such as Mahindra and Mahindra and Maruti Suzuki India Ltd as their products get significant traction in rural and semi-urban markets.

Mahindra and Mahindra expects demand for tractors to recover from June as the lockdown is likely to be removed gradually in various states after a steep decline in covid cases, said Rajesh Jejurikar, executive director, auto and farm sector, Mahindra and Mahindra. His optimism is on the basis of feedback from dealers and other stakeholders.

“In auto, we might have to wait for a month or two before the demand comes back. Our conviction is that we will see a strong comeback of demand once the economy opens up," Jejurikar said in a post-earnings conference call.

“The semiconductor issue has impacted certain models. Supply side issues are expected to continue with the localized lockdowns. Our Maharashtra-based plants are coming back to normal levels," Jejurikar said.

Customers with existing bookings are deferring purchases to June and the cancellation of existing bookings is around just 10%, according to analysts of Motilal Oswal Institutional Equities.

A strong recovery is expected once restrictions are lifted as demand for personal mobility has been reinforced after the second covid wave.

“Our interactions with leading industry channel partners reflect optimism regarding a recovery once the lockdown is lifted. Two-wheeler demand continues to remain subdued, with dealer inventory at 30-60 days. Demand momentum in passenger vehicles is expected to resume once the lockdown is lifted as inventory levels are below normal (less than 30 days), with a waiting period of six-eight weeks for fast-selling models," said analysts of Motilal Oswal Institutional Equities in a note dated 28 May.

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Published: 07 Jun 2021, 12:33 AM IST
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