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After rise in auto sales in early June, the spread of covid-19 and re-imposition of restrictions on people's movement pose a risk to recovery of auto sales. (Mint)
After rise in auto sales in early June, the spread of covid-19 and re-imposition of restrictions on people's movement pose a risk to recovery of auto sales. (Mint)

Automobile sales recovery at risk as covid-19 spreads in non-metros

  • Auto dealerships saw a weakening of footfalls and enquiries at showrooms, says Investec Capital Services based on analyst interactions
  • Google searches for top car and two-wheeler models have been flat since first week of June, according to an analysis by a Jefferies India

The spread of covid-19 and re-imposition of restrictions on people's movement, and commercial establishments are posing a risk to recovery in automobile sales. Channel checks and interactions with automobile dealerships by analysts at Investec Capital Services (India) Pvt. Ltd indicate an easing of demand and consumer enquiries in July.

“In July 2020 demand/foot falls/enquires have been weak in most of the auto dealerships we spoke to. Dealers in rural areas attribute this to a surge of covid-19 cases in the hinterland, the imposition of a lockdown in cities/taluka places, folks in villages fearful to travel to nearby talukas due to higher instances of Covid-19, engagement of people in agriculture activities as rainfall has been good so far," analysts at Investec said in a note.

The survey findings are in variance to the sequential recovery in automobile sales in June. Pent-up demand and reopening of showrooms have helped automobile companies clock better sales in June (vis-a-vis April and May).

Separately an analysis of the automobile registrations and Google search activity of top cars and two-wheeler (2W) models by Jefferies India Pvt. Ltd indicate a slight moderation last week. Two-wheeler registrations dropped 38% from the year ago in the week ending 18 July, slightly higher than 33% fall in the previous week (ending 11 July). Similarly, passenger vehicle registrations dropped 18%, higher than 14% fall in the earlier week.

“India's passenger vehicles (PV) and 2W registrations, after improving in May and first half of June, have been flattish for the last 3-5 weeks. On a year-on-year basis, tractors rose 22% last week, PVs were down just 18%, while 2Ws declined 38%. Google search trends for cars and 2Ws inched down week-on-week, but are broadly holding up near January-February level. A further pick-up in registrations is crucial though," analysts at Jefferies India said in a note.

While data trends in the next couple of weeks will provide more clarity, the recovery in automobile sales is also contingent on the slowdown of the covid-19 infection rate.

Consumers are already venturing out less from their homes. Anecdotal evidence shows people in the rural areas are restricting their travel to urban centres except for unavoidable work and purchases. This can weigh on footfalls in automobile showrooms and prospective sales. “The hope of volume recovery from Q3FY21 (festival season) is at risk if the spread of infection is not curtailed," adds analysts at Investec.

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