Passenger vehicle sales in free fall

NEW DELHI: The auto industry has pressed the panic button and said that sales will be in a free fall this fiscal due to the impact of the coronavirus and the economic slowdown. Passenger vehicle sales are likely to crash to a 11-year low as absolute numbers in 2020-21 go below those sold in 2009-10.

The industry’s capacity utilisation will be at around 50%, or “at best” 60%, as demand will remain severely depressed, despite the emergence of some green shoots over the past few weeks. This is notwithstanding the stabilisation in demand achieved in July, where a few companies managed to stay positive over the sales achieved in the same month last year.

The situation is the same for other segments as well, where the numbers are estimated to see a major dip, according to an internal presentation made by the Society of Indian Automobile Manufacturers (Siam) to various wings of the government, including ministries of heavy industries, and road transport and highways, sources told TOI.

Siam said the “near loss of one full quarter sales” due to the coronavirus and subsequent lockdowns (April to June this fiscal) will depress overall volumes, and even a late recovery will not be sufficient to make up for the shortfall.

According to projections, sales of passenger vehicles (cars, SUV/UVs, vans) will finish 2020-21 at 1.91 million units, lower than 1.95 million units sold in 2009-10. Volumes in two-wheelers (motorcycles, scooters and mopeds) will be less than what the companies had sold in fiscal 2011-12 (12 million versus 13.4 million in FY12).

Siam is the apex body representing the auto industry in India and its members include Maruti Suzuki, Hyundai, Tata Motors, Hero MotoCorp, Bajaj Auto, TVS, Mercedes-Benz, and Force Motors. Siam director-general Rajesh Menon said investments into capital assets, R&D and new jobs will not be robust in view of the depressing sentiment and pressure on demand.

Siam has asked the government for urgent relief in the form of tax incentives and other demand-generation measures. “We need to have at least 10% cut in GST rates across vehicle categories to drive in affordability. Moreover, we also need an incentive-based scrappage scheme to prompt customers to replace older vehicles,” Menon said. Siam president Rajan Wadhera has said the industry is passing through its most difficult period ever. “It’s a grim situation. We are in a very, very difficult period,” he said, adding that “high taxation” remains one of the biggest pain point.

“While the government charges GST between 28% and 60% across different vehicle categories, the profitability of companies is only between 3% and 9%. It is around 3% in commercial vehicles, while for two-wheelers it is around 9% and passenger vehicle makers have around 5-6%.” While July numbers for the auto industry have shown positive signs, Siam said that some of the positives are led by pent-up demand as there was no sales during the lockdown period. Also, sales in July last year were weak, making it a low-base year. Already, top companies such as Maruti and Hero Moto have said they will control fresh investments and costs to fall in line with the tough environment.