Rising cases may dampen festive cheer for auto companies
September 16, 2020
India’s automakers expect passenger vehicles and two-wheelers sales to grow significantly during the upcoming festive season, despite the challenging environment because of the rising covid-19 cases, largely buoyed by the gradual pickup in retail demand since June, said senior executives of automobile manufacturing companies at the Mint CMO Dialogues on Tuesday.
Demand for vehicles in the urban markets also has to pick up to witness a proper recovery, as urban markets command a higher share of overall vehicle sales, they said.
Most automobile companies have ramped up production and increased wholesale dispatches to increase inventory levels at dealerships, as sales during festivals account for almost a fourth of the overall vehicle sales in a fiscal year. In the last two years, however, vehicle sales during Diwali and Navratri remained subdued because of the broader economic slowdown.
Sentiment always play a big role in influencing festive demand and, if the covid-19 spread does not worsen it, the industry, including Maruti, could look forward to good festive sales this year, according to Shashank Srivastava, executive director, marketing and sales, Maruti Suzuki India Ltd.
“Government spending in the rural economy has also driven the sentiment. While we say that Bharat is leading India’s growth, it cannot carry India. This means that unless the urban demand recovers, we might not see the great demand revival that we are expecting,” Srivastava said.
Vehicle manufacturers have witnessed continuous decline in sales from the second half of FY19 because of the economic slowdown and an increase in vehicle prices because of the need to transition to Bharat Stage 6 emission norms.
In FY20, sales of vehicles fell 15-25% across categories after reporting low single-digit growth in FY19. Vehicles sales are expected to fall 25-45% across segments, according to the Society of India Automobile Manufacturers (Siam).
August has given the auto industry some hope as sales were 35% higher during the Ganpati festival on a corresponding basis, according to Tarun Garg, director, sales and marketing, Hyundai Motor India Ltd. This is a good indicator of demand for cars.
“There has been a 20% swing between the urban and rural markets and this highlights how strongly rural demand has come up. However, the big growth for cars has to come from cities because that’s where the basic demand lies. The overall sentiment has to improve and that is what we are looking forward to,” said Garg.
Post-lockdown vehicles sales, especially for entry-level cars and motorcycles, in the rural market has picked up faster because of a healthy monsoon, good summer crop and fewer covid infections.
“Penetration remains very low in the rural market. However, there are ample robust factors for demand to be sustained in the long-term,” said Naveen Chauhan, national head, sales and after-sales, Hero MotoCorp Ltd. “Rural has always led urban demand by 4-6%, in these times it has gone up by 8-10%,” he said.
“ Customers are splurging on cars at the top end—like S Class, GLE and GLS. But during the festival season it is time for customers to also go for the bottom segment priced at ₹40 lakh and above,” said Santosh Iyer, vice president, sales and marketing, Mercedes-India Ltd.