Auto sales may see more than 70 per cent drop in Q1

Indian automakers could report the worst demand decline in almost three decades in the three months to June, with wholesale dispatches and retail sales of passenger vehicles contracting drastically in the quarter that coincided with arguably the world’s strictest and most comprehensive lockdown to prevent the coronavirus from spreading.
The industry could see an overall decline of 25-45% in fiscal 2021 and Q1 could see a drop of more than 70 percent, with heavy commercial vehicles expected to see a degrowth of 50%, touching sales levels of 2008.

According to industry estimates, passenger vehicle wholesale figures could shrink to 1.5 lakh units from 8.73 lakh units. Retail sales could fall to 2.5 lakh units from 7.94 lakh units recorded last year.

The industry is hoping for better numbers in June with sales limping back to 35% of pre-Covid levels. “Even as the industry is looking forward to a better sales performance in June, the plant level capacity utilisation is just 20 to 40%,” said Rajan Wadhera, President, SIAM.

“Even though the May sales figures were just a timid reflection of what the companies reported in the same month last year, they are still better than the big zero of April,” said Pawan Goenka, MD at Mahindra & Mahindra, at an ET Auto conference last week. He mentioned that segments like SCVs, small cars and two-wheelers have seen a good pick-up in demand with rural sales.

Industry watchers say the demand will depend on the fundamentals of the economy and also on how the Covid situation evolves.

“The months of April and May are not really representative of demand patterns as the majority of the dealerships were closed due to the lockdown and started operating only toward end-May,” said Shashank Srivastava, Executive Director-Marketing at Maruti Suzuki. “However in June, almost 90% of the dealer outlets were open and in the case of Maruti Suzuki, 2800 out of a total of 3087 dealerships opened up.”

E-commerce and increased focus on personal mobility are benefiting certain pockets of the auto market.

"Segments such as two-wheelers are facing a production issues as they have now reached 65-70% capacity levels, while e-commerce has triggered growth for small and medium commercial vehicles,” Wadhera added.

However what is a major worry for the industry is the truck business.

"In FY21, CV sales will be the slowest to recover and will not make a comeback soon. The steep price increase from BS4 to BS6 and the financing crisis have affected CV offtake,” said Vinod Aggarwal, MD & CEO, VE Commercial Vehicles.

It is very clear that rural demand has picked up and companies with a larger rural exposure are doing well. However "consumers are sceptical to open up their wallets as yet and the pull brands will see quicker recovery than push brands”, said Som Kapoor, partner ,automotive at EY.

What is encouraging is that green shoots have started emerging for certain auto companies, especially those with a higher rural outreach. It is this optimism which the auto industry will need to ride on to come out of troubled waters, say experts.