India auto sales remain depressed as rising Covid cases turn buyers cautious

Demand for automobiles has long been used as a bellwether for consumer sentiment while that for commercial vehicles (CVs) is a lead indicator of business sentiment and thereby has significant implications for the domestic growth story.

Over the last one year this relationship has been partly affected by the global shortage of chips leading to supply disruption, especially four-wheelers. Willy-nilly, it is a key determinant of industrial activity as lower sales lead to lower production of automobiles, which also affects the huge auto ancillary business.

Total vehicle sales in the country during December 2021 decreased 16% from a year earlier to 1.55 million units, according to the Federation of Automobile Dealers Associations (FADA), the apex national body of automobile retail industry in India.

What’s even more significant is that the sales were lower by 6% even when compared with December 2019, which was before the Covid-19 pandemic impacted global businesses. This means the automobile industry is still to come out from the three-year pushback.

Overall auto numbers are skewed because of two-wheelers, which comprise three-fourths of the total by volumes. Bike and scooter sales is also a key indicator of rural demand and rural consumer sentiment.

FADA said two-wheeler sales show no sign of recovery as customers remain cautious amid a rapidly rising third wave of Covid-19 and poor rural sentiment. Two-wheeler sales declined by a fifth to 1.14 million last month and marked a 10% decline over the numbers in December 2019.

Passenger vehicle sales

Passenger vehicle (PV) sales continue to face the brunt of the semi-conductor shortage with consistent long waiting periods. PV sales had shot up over 25% in December 2020 over the year-ago period as year-end discounts after the pandemic and lockdowns affected demand in the first half of 2020. But sales sank again by around 11% last month to 2.44 lakh.

However, there were some silver linings as shown by robust bookings and some easing in vehicle supply.

Tractor sales, which had rocketed by a third in December 2020 compared with the corresponding month in 2019, slid over 10% again last month.

However, sales of PVs and tractors last month were higher compared to December2019.

Commercial vehicles

On the brighter side, sales of three-wheelers and CVs were up 59% and 14%, respectively, over December 2020. The last month of 2020 was particularly brutal for these segments as sales had sunk rapidly over the year-ago period, leading to a low base.

The medium and heavy CV segment was the top performer in the CV space, taking overall sales to almost pre-covid levels. The light CV segment grew, too, but remains at a lower level compared to December 2019.

FADA said that various state governments have once again announced Covid-related restrictions and work and education from home have resumed. This will have negative impact for auto retail.

“With the fear of healthcare expenses rising again, the customers are shying away from closing their purchase decisions,” it added.