The second wave has brought the auto sector to its knees

Photo: Mint
Photo: Mint

Summary

The automobile industry, which makes up nearly half of India’s manufacturing activity, has been laid low by the covid crisis for the second consecutive year. Mint explores the magnitude of the impact and how auto companies are tackling it.

The automobile industry, which makes up nearly half of India’s manufacturing activity, has been laid low by the covid crisis for the second consecutive year. Mint explores the magnitude of the impact and how auto companies are tackling it.

What has happened during the 2nd wave?

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 like Tata Motors and Bajaj Auto Ltd have been continuing with production with limited capacity. Some firms also shut down plants since deliveries have stopped and sales are expected to remain subdued for the next two months.

When is the industry expected to recover?

Passenger vehicle sales might bounce back after the caseload reduces and economic activity resumes. High existing order books and customer preference for personal mobility are expected to fuel demand for Maruti Suzuki India Ltd, Hyundai Motor Ltd, and Tata Motors Ltd. Two-wheeler and commercial vehicle sales might take longer since rural markets have been hit hard. Rural areas were largely untouched by the first wave which led to a quicker recovery in 2020-21. Overall, auto companies are planning to resume production from this week or next, with limited disruption in supply chains from the second wave.

What does the April auto sales data say?

Wholesales of passenger vehicles fell 10% sequentially to 261,633 units in April 2021. Two-wheeler sales fell by 33.5% to 995,097 units. Showroom sales also slowed down in April: passenger vehicle sales declined 25.33% to 208,883, while motorcycles and scooters dropped 27.6% to 865,134. Vehicle retail sales had been recovering since the festive season in October.

Tough road ahead
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Tough road ahead

What is the impact on dealers and suppliers?

Severe. They have been suffering from low sales since the second half of FY19 and most will need additional support from banks, government and automobile firms to stay afloat in the coming months. The Federation of Automobile Dealers Associations has asked the government for financial assistance like last year, and the central bank for revised guidelines for relaxation of loan re-payments. Almost 80% dealerships, some of them with decent level of inventory, are shut across the country.

What is the impact on the auto industry?

In the June quarter, most firms are expecting business to go back to June 2020 levels as manufacturing may not resume in full capacity anytime soon. The industry is expecting a sharp double-digit decline in sales in FY21. Firms took almost two months to return to normal schedules after the last lockdown. But the sector made swift recovery in tandem with economic activity and increased preference for personal mobility. It ended the year with low single-digit fall, and now it’s expecting to return close to FY19 levels in FY22.

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