Passenger vehicle demand may drop by 25% due to lockdowns: Reports

Domestic passenger vehicle demand may decline by almost a quarter in the current fiscal as against earlier projections of a 10-12 per cent drop due to multiple lockdowns, ratings agency ICRA said on Monday.

Despite several surveys predicting a rise in demand for passenger vehicles in the era of social distancing, Icra reports a drop of almost 25%. (File photo used for representational purpose) (AP)
Despite several surveys predicting a rise in demand for passenger vehicles in the era of social distancing, Icra reports a drop of almost 25%. (File photo used for representational purpose)

ICRA in a note also said it continues to have 'negative' outlook on the passenger vehicle (PV) industry since the second quarter of the previous fiscal FY2020 but it can turn to stable from negative if demand environment improves on a consistent basis over the next 12-18 months.

"As per ICRA note, the PV passenger demand is now estimated to decline by 22 per cent to 25 per cent in FY2021, as against earlier estimated volume decline of 10-12 per cent in FY2021, post-Lockdown 1.0. The expectation then was that normalcy would return by the second week of May," it said.

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However, multiple lockdown extensions are having a direct bearing on the economic environment and consumer sentiments.

The rapid spread of Covid-19 across the region and consequent lockdown extension has wiped off volume during the first two months (April-May) of the current fiscal, ICRA said.

Also Read : Auto dealers seek higher sales margin, cost reduction measures as profit drops

"Each lockdown extension by 15 days has taken a toll on full-year industry demand by 3-5 per cent. Given the adverse overall conditions, ICRA continues to have 'Negative' outlook on the PV industry since Q2 FY2020," it said.

According to the note, multiple factors like liquidity crunch and tighter financing environment, weak rural income and overall slowdown in economic activity, consumer sentiments have been negatively impacted. As a result, industry demand has been under pressure over the last few quarters.

Noting that some signs of recovery visible in the March quarter of FY2020 almost came to a nought post-Covid-19 pandemic outbreak which significantly altered the macro-economic environment.

ICRA expects GDP to decline by 5 per cent in FY21 as compared to earlier 4.7 per cent growth expectation prior to Covid-19 lockdown.

Also Read : Lockdown a sleep phase, auto industry will only walk in next few months, says FADA

The rating agencyalsoexpects the real income to decline in near-term which will directly impact large discretionary purchases like car, real-estate amongst others.

"Compared to our initial expectation of about 50-55 per cent decline in volume during Q1 FY21, the decline could be upwards of 80 per cent, thereby significantly impacting overall volume growth estimate for full year.

"While the demand environment is likely to remain weak for next 4-6-months, low base of Q2 FY20 (when wholesale dispatches declined by 29% Y-o-Y) will moderate pace of decline in Q2 FY2021."

First Published Date: 02 Jun 2020, 08:59 AM IST
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