Vehicle News

Slight recovery likely in near term: FADA

While the automobile sector is yet to shrug off the effects of the pandemic, all categories were in green and two-wheelers, three-wheelers, commercial vehicles and passenger vehicles as well as tractors were up by 38%, 96%, 25% and 26%, respectively

Vinkesh Gulati, FADA President

The Federation of Automobile Dealers Associations (FADA) has released vehicle retail data for April 2022, indicating that on a year-on-year (YoY) basis the total vehicle retail for the stated month increased by 37%. On YoY basis, all categories were in green and two-wheelers, three-wheelers, commercial vehicles and passenger vehicles as well as tractors were up by 38%, 96%, 25% and 26%, respectively. However, this does not imply that the automotive retail has recovered from the jitters of the pandemic. When compared with the data of April 2019, total vehicle retail was down by 6%. Except PV and tractors, which were up by 12% and 30%, all the other categories like 2W, 3W and CV were down by 11%, 13% and 0.5%, respectively.

Meanwhile, the Reserve Bank of India’s move of increasing repo rate by 40 bps has clearly taken everyone off guard. This move will apply brakes and dampen the sentiments further. Skymet has recently predicted a normal monsoon. This will have a positive rub-off on rural sentiment which thus far has shown lacklustre performance. Tractor and 2W sales are likely to improve if monsoons are evenly distributed. Commenting on how April 2022 performed, FADA President Vinkesh Gulati said, “The month of April saw similar automobile retail figures as March 2022. While YoY comparison with April 2021 shows all categories in green with high growth rate, it is important to note that both April 2021 and April 2020 were affected by nationwide lockdown due to the two phases of the corona virus wave which witnessed none to negligible business.”

“Hence, a better comparison will be with April 2019 which was a normal pre-pandemic month. April 2022 when compared with April 2019 reveals that we are still not out of the woods as overall retails were down by 6%. Apart from PV and tractors which grew handsomely by 12% and 30%, respectively, 2W, 3W and CV are yet to turn green as these categories were down by 11%, 13% and 0.5%, respectively. With the Russia–Ukraine war continuing and China under lockdown, the global automobile industry continues to witness a supply crunch as semi-conductor shortage along with high metal prices and container shortage prevails,” he added.

“Customers of PV segment therefore continue to witness long waiting periods. The 2W segment which has witnessed slight increase in sales when compared to last month is extremely sensitive to price hikes and continues to remain below the pre-pandemic levels. It is a clear sign that Bharat has not been keeping up with India. Apart from rural distress, multiple price hikes coupled with high fuel prices are keeping price-sensitive entry level two-wheeler customers away. The CV segment after a long downturn which began post the announcement of axle load norms in 2018 is now witnessing demand recovery as all sub-categories continue to inch north. The government’s push for infrastructure spending will further aid sale,” Gulati further stated.

Near-Term Outlook

The Russia–Ukraine war and China lockdown will continue to create demand-supply mismatch, thus delaying the availability of PVs. This coupled with Reserve Bank of India’s out of turn announcement of increasing the repo rate by 45 bps has taken everyone off-guard. The move will curb excess liquidity in the system and will make automobile loans expensive. While the PV segment may be able to absorb this shock due to long waiting periods, the 2W segment is already reeling due to an underperforming rural market, vehicle price hikes and high fuel costs. High interest rates for vehicle loan will be an additional blow for this segment. Certainly, this move will slow the speed of automobile retail and dampen the sentiments further.

On the other hand, private consumption is regaining traction backed by a recuperating contact-intensive services and rising discretionary spending. Also, Skymet has come out with a normal monsoon forecast. If the same is evenly distributed, it will have a positive rub-off on rural sentiment as farmers will be able to get better crop realisation, thus increasing their disposable income. It will therefore benefit tractor and 2W sales. This along with the marriage season in the coming days will also see traction in automotive retail. Overall, FADA has changed its stance from ‘extremely cautious’ to ‘cautious’ in terms of slight recovery in the near term.