India automotive industry sales, output recovering post-lockdown

Priya Jestin

06-Jul-2020

MUMBAI (ICIS)–India’s automotive industry seems to be on the road to recovery, buoyed by rising demand in rural and semi urban sectors, after recording almost zero sales in April.

“The automotive industry has started to see recovery both in the passenger and small commercial vehicle segments. This has been led primarily by rising rural demand and movement of essential goods across the country,” said Veejay Nakra, chief of sales & marketing at the automotive division of Mahindra & Mahindra.

Mahindra & Mahindra is one of the largest vehicle manufacturers in India by numbers and one of the largest tractor manufacturers globally.

The automotive industry is a major global consumer of petrochemicals, which make up more than one-third of the raw material cost of an average vehicle.

Stringent nationwide lockdown restrictions in India saw most automakers recording zero domestic sales in April, and in May, almost all manufacturers reported a year-on-year slump of 80 to 90% in sales.

In June, market leader Maruti Suzuki announced a nearly 54% decline in sales over June 2019 to 57,428 units, while in May, sales stood at 13,539 units.

Total sales at Hyundai Motors dropped 54.39% to 26,820 units in June, but higher than May’s 12,583 units.

Tata Motors, which has now decided to report only quarterly sales, showed total sales drop to 25,047 units in April-June 2020, down by about 82% year on year.

While urban demand is still lagging due to the impact of the coronavirus pandemic-induced lockdown, industry players say that rural India is witnessing faster recovery which has helped companies such as Mahindra & Mahindra and Hero MotoCorp.

Two-wheeler market leader Hero MotoCorp registered sales of 450,744 units in June, compared to 616,526 units in June 2019.

“A major part of the market demand is emanating from the rural and semi-urban markets, which have been helped to a large extent by the various stimulus packages rolled out by the government,” said HeroMotoCorp chairman Pawan Munjal.

“The forecast of a normal monsoon, a bumper Rabi crop (winter) and the upcoming festive season are expected to keep the momentum going over the next few months,” he added.

The Hindu festival season in India lasts from around mid-August until end-November, during which, people usually make big purchases such as vehicles and homes.

These factors also saw a strong increase in tractor sales with Mahindra & Mahindra recording a 12% year on year rise in tractor sales to 35,844 units in June.

Automakers are now increasing output with Maruti Suzuki and Hyundai Motors planning to operate three shifts at their plants to meet the rising demand.

However, most automakers fear that the pandemic-induced economic contraction could worsen the slowdown in the Indian auto industry, which recorded an 18% decline in sales in the fiscal year ending 31 March 2020.

Officials from the Society of Indian Automobile Manufacturers (SIAM) had warned in May that a 2% contraction in the Indian economy would mean up to a 45% slump in sales of cars, trucks and motorbikes.

“We expect to see positive growth only in the next financial year and a return to old sales numbers much later, once workers are brought back, component makers get orders, transport system revives and sales staff close deals,” SIAM president Rajan Wadhera said in late June.

Lack of skilled labour and strict standard operating procedures laid down by the government have led to a substantial increase in costs for auto component manufacturers, said Deepak Jain president Automotive Component Manufacturers Association of India (ACMA).

Labourers across manufacturing hubs in India returned back to their homes when the government relaxed the lockdown and most of them are yet to return to their places of work.

This could hurt output at a time when leading automakers across segments are planning to ramp up production, Jain said.

Border tensions with China and an accelerated move to reduce Chinese imports could also impact the industry, as any moves to curb imports without developing alternatives could hurt local businesses, said industry sources.

To increase sales, SIAM has reiterated its demand for a reduction in taxes from the current 28% to 18% and the implementation of a vehicle scrappage policy. It has also asked the government to increase purchases of buses by state transport companies.

Focus article by Priya Jestin

Photo: Maruti Suzuki cars in Vasai, India. 8 December 2011 (By Divyakant Solanki/EPA/Shutterstock)

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