Indian auto industry faces another year of double-digit sales decline: CRISIL
Bruised by falling demand and transition to BS 6 technology, the year 2019 proved to be one of the toughest for the Indian automotive industry. Hopes of a rebound in 2020 gathered steam at the start of the new year, only to be broken and battered by Covid-19 pandemic and the ensuing lockdown. The later part of March and all of April saw production at a standstill, supply chains severely affected, showrooms shuttered and demand muzzled. And even if the industry is only now stuttering back to life, rating agency CRISIL predicts yet another year of double-digit decline in sales.
In a webinar conducted on Thursday on the automotive and automotive component sector, Hetal Gandhi - Director, CRISIL Research, elaborated on the massive challenges on the path ahead. "Automobile sales are running out of steam as urban income sentiment wilts under the pandemic," he said. "We assessed 26,000 companies that have a total employee cost of ₹7 lakh crore. It indicates that over 60% of this cost resides in companies that are expected to see a sharp reduction in revenue growth, and where employees are a meaningful cost head. This is expected to lead to higher risk of job losses or pay cuts."
Also check these Vehicles
1811.0 cc
14.0 kmpl
200 kmph(Global outlook: 'Black April' for Russian car industry | Europe car sales plunge to record depths | SUVs parked in ocean reveal massive scale of car glut)
With job cuts or retrenchments, or even the possibility of these, there is a strong indication that people would most likely cancel or push back plans of vehicle purchases. CRISIL observes that passenger vehicles - extremely crucial in the overall auto sector - could see the maximum amount of such postponements. It further elaborated that since this segment has a high finance penetration of 78% to 80% and because of income uncertainty, the number of customers opting to take loans would decline. Commercial vehicles are unlikely to fare much better either with CRISIL highlighting the the impact of updated axle-load norms - allowing for more weight than can be transported by a commercial vehicle, and low freight demand as key factors.
The only glimmer of hope may come from the two-wheeler segment and tractors. Here too, the positive possibility is that the decline could be far less severe. "A sharp contraction in sales would lead to a decline in average utilisation at the industry level from ~58% to below 50% this fiscal. In the PV segment, utilization would roll down from 58% to 44%, in two-wheelers from 65% to 50%, in tractors from 59% to 51%, and in CVs from 51% to 39%," said Pushan Sharma, Associate Director, CRISIL Research.
In live interaction sessions conducted by HT Auto over the past several weeks, a number of industry experts and OEM executives have said they are looking at the festive season to inject some life into the auto industry. "If in lockdown, we were in sleep phase, maybe in the first three months (March, April, May), we would only be walking. Actually running and seeing customers coming in would happen in the balance six months, Federation of Automobile Dealers Associations of India's Vinkesh Gulati had said in one such session. (Full report here)
CRISIL analysts also feel that the third quarter of this fiscal could provide some respite but largely for two-wheelers and tractors which have a higher rural share. A recovery in passenger and commercial vehicles' segments is likely only by fourth quarter, they predict.
