Logistics

Need for social distancing may drive used-car, 2-wheeler sales

G Balachandar Chennai | Updated on May 29, 2020 Published on May 29, 2020

Preference for personal transportation is likely to spur sales of used- and entry-level category cars. Also, financial pressure may drive buyers to opt for pre-owned cars rather than new ones

The preference for personal transportation due to Covid-19 related issues is expected to have a positive impact on used car sales, while growth in rural income will augur well for two-wheeler sales this fiscal, according to Crisil.

All auto segments are bracing for another year of double-digit decline in this fiscal. The recovery in the two-wheeler segment will be slightly better, while the passenger car and commercial vehicle segments will be under significant pressure.

Urban income sentiments are going to be impacted for the next two quarters due to issues such as job losses and salary cuts.

According to Crisil survey, over 60 per cent of the 26,000 companies that have a total employee cost of ₹7-lakh-crore, are expected to see a sharp reduction in revenue growth. This is expected to lead to a higher risk of job losses or pay cuts.

Personal transportation

Amid this muted sentiments, preference for personal transportation may increase and more and more people may go for buying a vehicle due to Covid-19 related norms.

But, will people make a high-cost purchase like a car at a time they may be thinking of preserving cash due to the shutdown and consequent impact on their jobs?

Yes. They may not postpone or drop it, Hetal Gandhi, Director, Crisil Research, said during an interaction today. “Car buying is not an instinctive purchase in India and people would have taken such decision 3-4 years after reaching certain affordability levels,” she said. This preference for personal transportation is likely to spur sales in the used-car and entry-level car category. Some portion of the prospective buyers who had decided to purchase new cars may opt for used cars due to cost pressure.

TT Srinivasaraghavan, Managing Director of Sundaram Finance, a leading private lender, felt that with social distancing set to become the norm, demand for personal transport would see a surge, especially in the entry-level segments as well as in pre-owned cars.

The pre-owned market may grow by about 10 per cent this fiscal, noted Gandhi.

Rural markets

While urban markets will be under pressure, there is some respite from rural markets. Since two-wheelers, bikes in particular, derive a major chunk of sales from rural markets, good rabi crops and consequent improvement in earnings will result in recovery in demand for bikes. Only less than 1/5th of the sales of two-wheelers come from the top 25 cities, which account for 70 per cent of Covid-19 cases, said Gandhi.

A recovery in demand is expected only from the festival season in the third quarter of this fiscal — and largely for two-wheelers and tractors, which have a higher rural share. Passenger and commercial vehicles, which have a higher share of replacement demand, may see recover only in the fourth quarter.

Overall, for 2020-21. sales of PVs are expected to decline 24-26 per cent compared with a 21-23 per cent decline for two-wheelers. Commercial vehicle sales are expected to plunge 26-28 per cent. But, with better rural sentiments, tractors’ sales decline will be 7-9 per cent.

Published on May 29, 2020
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