More than half of passengers vehicles sales are at risk due to Covid-19: Crisil

In an analysis of district-wise sales pattern of automobiles by CRISIL Research, which segregated districts by the level of risk from the coronavirus pandemic, ‘high impact’ and ‘very high impact’ districts together account for 56 per cent of two-wheeler sales, and 68 per cent of passenger vehicle sales.

As things stand, even if the nation-wide lockdown is lifted on May 3, the resumption of normal operations at automobile dealerships would depend on whether a dealership is outside the demarcated hotspots and if it has the necessary licences from the state/ district administration to operate, it said in a statement on Tuesday.

To capture the magnitude of risk for automobile sales, the credit rating agency deployed a two-factor framework, comprising the industry’s sales opportunity and the size of risk from Covid-19.

This was captured in terms of district-wise concentration of sales and growth momentum, and the risk in terms of district-wise assessment of present case intensity and further risks of virus spread, it said.

Sales of discretionary automobiles such as passenger vehicles and two-wheelers are likely to remain under pressure in the near term, it noted.

District-wise sales pattern

“An analysis of district-wise sales pattern reveals that the passenger vehicle segment has higher inherent risk compared with two-wheelers, because of a relatively higher concentration of sales in the top 100 districts. These districts account for 62 per cent of passenger vehicle sales and only 45 per cent of two-wheeler sales, in terms of volume,” said Ajay Srinivasan, Director, CRISIL Research.

In ‘very high impact’ districts, the level of risk is considerably different for the two segments, with half of passenger vehicle sales and a third of two-wheeler sales expected to be impacted, said CRISIL.

Besides, GDP growth is forecast to slow down to 1.8 per cent this fiscal, portending demand-side pressures, it said.

On the brighter side, 44 per cent and 32 per cent of the market for two-wheelers and passenger vehicles, respectively, lies in ‘very low to moderate’ risk districts, where normalcy is likely to return relatively more quickly, although in a phased manner, said CRISIL.

Automobile manufacturers and vehicle financiers need to tactically target low-to-moderately impacted districts and also appropriately retune their strategies in high-to-very high impact districts to minimise the impact on their sales performance, said the rating agency.

“Players in the industry will have to devise a strategy after carefully considering their product portfolios, sales distribution by district and dealership presence – all of which are key to pushing volumes in this scenario. Prioritisation of districts on the basis of opportunities and risks will be the new matrix to work on,” said Hemal N Thakkar, Associate Director, CRISIL Research.

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