Auto industry supply chain woes easing gradually, indicates ICRA study

The supply chain disruption in the auto industry is gradually easing, indicates a study by research agency ICRA. It has conducted a survey on automobile dealerships, which shows how favourable demand in select segments and gradual easing of supply chain disruptions are creating a positive sentiment in the auto sector.

The automobile dealerships have been witnessing several headwinds in the recent past. These include subdued demand for two-wheelers, supply constraints impacting the growth of passenger vehicle sales, and a high base effect limiting the growth in the tractors segment. The survey claims that select segments have been witnessing demand recovery.

ICRA claims that 80 per cent of the two-wheeler dealer respondents indicated that demand for new motorcycles and scooters remains weaker than last year, owing to the extended work from home, and education from home. It also claims that undistributed rainfall affected demand for motorcycles in the rural markets.

On the passenger vehicle front, retail demand for PVs remains healthy, claims the study. It claims that 53 per cent of the respondents selling passenger vehicles have said that demand in this segment has improved compared to last year, despite the supply chain constraints such as semiconductor shortages that have impacted vehicle production.

The study claims that semiconductor availability has been improving on a sequential basis over the past few months. This is eventually helping in the production and supply of passenger vehicles, resulting in sequential growth. However, the long waiting periods for passenger vehicles are still a concern for the industry stakeholders. The study says that 92 per cent of the P{V dealer respondents have indicated that waiting periods have increased compared to the last year on account of supply constraints.

Speaking about the findings, Nithya Debbadi, Assistant Vice President and Sector Head, ICRA, said that while dealership segments are witnessing varied headwinds, supply is improving on a sequential basis and demand has been improving in select segments. "The stable financing environment also augurs well with improving demand. Lower inventory is expected to reduce working capital borrowings and accordingly interest costs for the dealers and support their net margins. Further, due to low inventory levels, dealer discounts have also been minimal, which has further supported earnings of dealerships. Given these supporting factors, ICRA’s outlook on the automobile dealerships is stable," Debbadi further added.