Covid second wave threatens to throw auto industry out of gear

G Balachandar Chennai | Updated on April 26, 2021

Spike in new cases and restrictions in key States have aggravated the problems for OEMs, which were reeling under semiconductor supply issues   -  Bloomberg

Rising infections in rural areas hits two-wheelers, tractors

The second wave of Covid-19 is threatening to slam the brakes on the automotive sector that was just beginning to accelerate.

The cautious optimism with which the auto-makers looked forward to FY22 has given way to worry as the sudden spike in the infections has led to lockdown in many key markets.

Walk-ins drop

In a major setback this time, the rural markets appears to be suffering, too, and two-wheeler sales have already taken a beating.

Tractor sales may also feel the pressure though it is still early to make any conclusion.

Industry representatives and passenger vehicle dealers say customer walk-ins have dropped considerably.

“Overall, things are not that good. Covid States have gone through lockdowns. All dealerships are closed there and obviously it will affect the retail business. Even in other States where markets are open, customer movement has reduced and footfalls have dropped due to fear psychosis. Overall, walk-ins have dropped considerably,” says Vinkesh Gulati, President, Federation of Automobile Dealers Associations (FADA).

It’s a double-whammy for the PV segment as the spike in new cases and restrictions in key States have aggravated the problems for OEMs, which were altready reeling under semiconductor supply issues.

Thus, dealerships that are operational are facing challenges in getting vehicles from OEMs and meeting the commitments for bookings, while the future order book looks bleak.

2W sales skid

the two-wheeler segment appears to be facing the brunt of the second wave, as FADA Chief expects the retail decline to be higher than PVs.

“With no manufacturing disruptions (as in the PV segment), two-wheeler dealers started April with high inventory in view of favourable growth factors. But the second wave has hugely dented their sales. The de-growth will be 10-20 percentage points more than PVs this month” says Gulati.

Analysts at Motilal Oswal Securities say that two-wheeler dealers indicate that sales were down 30-50 per cent with no sign of a recovery. The impact of the second wave on small cities and rural areas is a big concern.

Tractor sales hit

Industry representatives are keeping their fingers crossed on tractors, too. During the first wave last year, tractor sales were not impacted.

While the industry was expecting a moderation in sales after the record volumes in FY21, the second wave threatens to impact tractor sales more this time due to the higher infections in rural areas.

A leading financier of two-wheelers and tractors says that it is little early to gauge the impact as most of its offices are open, unlike last time.

“Also, with rapid vaccination plans and learnings from last year, we expect things to come back to normalcy earlier than last time,” said a senior official of the company.

Published on April 25, 2021

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