Festive season likely to revive auto sales for brief period; OEMs hike production: India Ratings

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Production levels during last month for two-wheelers and PVs were at 100% and 94%, respectively, of the previous year’s

The festive season is expected to revive the automobiles providing some relief to the industry over the next two-to-three months, India Ratings and Research (Ind-Ra) said.

Any additional measures by the government like Goods and Services Tax (GST) cut or adoption of scrappage policy can help spur auto demand in the medium term, it said in its latest credit news digest.

Depleted inventory at the dealer level over June-July 2020, coupled with supply-chain issues, has prompted passenger vehicle (PV) and two-wheeler original equipment manufacturers (OEMs) to increase production, to have sufficient inventory available for the upcoming festive season.

Ind-Ra expects this trend to continue in September 2020 as well.

Production levels during last month for two-wheelers and PVs were at 100 percent and 94 percent, respectively, of the previous year’s.

Inventory stocking was more evident in the two-wheeler segment during August 2020 - retail sales fell 29 percent yoy compared to 3 percent yoy growth in wholesale billings by OEMs.

Motorcycle sales continued to drive the two-wheeler segment’s performance in August 2020, growing 10 percent yoy. Scooter sales volumes declined 12 percent yoy, said the rating agency.

However, retail sales are likely to continue to lag behind wholesale sales in September 2020. Federation of Automobile Dealers Association (FADA) reported some demand pullback from the urban centres in August 2020 along with sustained revival trend from the rural segment.

After an above-average acreage backed by the adequate monsoon, the prospects of a robust kharif harvest have original equipment manufacturers (OEMs) hoping for a retail demand revival from the rural side during the upcoming festive season.

Sales are likely to remain sluggish in September on the retail side due to the inauspicious period of Shraadh.

Although the retail demand also improved sequentially over April to August, sales volumes are still much lower than wholesales. Amid increasing cases of Covid-19 and job losses across the sections of the society, consumer sentiment remains weak.

The overall retail sales in August were only 71 percent of the August 2019 levels. Still, depleted inventory at the dealer level over June and July coupled with supply-chain issues has prompted passenger vehicle and two-wheeler OEMs to increase production and have sufficient inventory available for the upcoming festive period.

Ind-Ra expects this trend to continue this month as well. However, Ind-Ra said the continued disproportionate wholesale billings by OEMs can lead to increased stress for dealers if the festive season demand is lower than expected.

Image credit: Financial Express

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