
What do auto sales say about the economy?

Summary
Automobile production and demand across segments such as personal mobility and goods movement are a sign of the country’s economic growth. Auto wholesale data for February throws up some interesting trends and also highlights some potential risks. Mint explains:Automobile production and demand across segments such as personal mobility and goods movement are a sign of the country’s economic growth. Auto wholesale data for February throws up some interesting trends and also highlights some potential risks. Mint explains:
What do February numbers show?
Wholesale dispatches of passenger cars from original equipment manufacturers (OEMs) were on a steady path of improvement or sustained volumes in February. Two-wheeler production, on the other hand, fell nearly 27% year-on-year (y-o-y). Dispatches of trucks were higher in February across segments—medium, heavy and light. Tractor sales, however, were under pressure due to a high base effect from February last year. Barring some automakers, exports were largely in the positive terrain for most OEMs. The nascent electric vehicle (EV) market also saw a multi-fold jump in sales in February.
How is this linked to economic recovery?
Signs of rural stress and poor customer sentiment on the lower end of the income pyramid are evident from the lacklustre demand for entry-level cars and two-wheelers. Subdued tractor demand also betrays the same stress. Factors such as high fuel prices and successive increases in sticker prices of two-wheelers because of higher raw material costs have made the cost of acquisition high. Customers are therefore exercising caution. Entry-level passenger cars have also become nearly 10% more expensive as compared to January last year. Demand of mini-cars fell close to 18% y-o-y.

What’s the industry’s demand outlook?
Manufacturers and experts expect demand to rebound in the next fiscal year. Reopening of educational institutions and private offices will support demand in the two-wheeler and passenger car segments. The infrastructure push and growing e-commerce demand will push demand for commercial vehicles. But rising fuel and vehicle prices are key downside risks.
Are chip shortages still playing spoilsport?
Chip shortages continued to play spoilsport. Royal Enfield and TVS Motor Co. said the shortage impacted sales of high-end bikes and scooters. Maruti Suzuki India Ltd, India’s largest carmaker, has shown month-on-month improvement, but it isn’t able to utilize its full production capacity yet. Mahindra & Mahindra Ltd and Tata Motors Ltd were able to ramp up production sequentially and over the year—alternative sourcing arrangements may have kicked in. But most OEMs said the challenge will continue for a few months.
Can the Ukraine war disrupt supply chains?
The auto sector is on the cusp of recovery even as it faces headwinds such as high commodity prices and the global semiconductor crisis. While automakers are not anticipating any major direct impact of the Ukraine crisis, Icra Ltd highlights that in the event of a drawn-out war, chip availability could be hampered further as Russia and Ukraine are both key suppliers of raw materials. Oil prices have already crossed $100/barrel and can further dent demand for two-wheelers.