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File photo - Cars are seen parked at Maruti Suzuki's plant at Manesar, Haryana. (REUTERS)
File photo - Cars are seen parked at Maruti Suzuki's plant at Manesar, Haryana. (REUTERS)

The auto industry might witness growth despite the recent lockdowns

  • The Indian auto industry is expected to witness a rebound in the post-lockdown period, replicating a similar scenario like 2020.

The auto industry is among the most affected sectors due to the Covid-19 pandemic. From supply chain to production and dealerships, all the stakeholders of the Indian auto industry have been impacted hard by the second wave of the pandemic. The recent lockdowns in different states across the country have added salt to the wound. However, despite the lockdown related trouble, the domestic auto industry is expected to grow further.

(Also Read: Auto manufacturers reopening, but several factors resulting much lower output)

The growth forecasts by the automobile experts remain positive, despite the lockdowns as the base foundation of the Indian economy is still strong. Despite the dent in the consumer sentiment, it is still upbeat and the buyers the ready to buy with a slight improvement in the scenario. Also, the surging demand for personal mobility is a key factor that is driving the growth in the automobile industry, since the emergence of the Covid-19 crisis.

There is a huge pent-up demand for new and pre-owned vehicles, which is rearing to go. Despite the scope to convince the vehicle buyers more challenging than before, there are still huge interests in buying a new personal vehicle, which will drive the growth in the industry in coming days, post-lockdown. The customers will be more cautious and value-oriented than before, but there won’t be a knee-jerking halt in buying decisions for sure.

Here are few key reasons that are likely to drive growth in the Indian auto industry in the post-lockdown period.

1

Personal vehicles becoming a necessity

Owning a personal vehicle is not anymore a status-driven decision or a luxury, but a necessity. The importance of personal vehicles was felt during the previous lockdown, which fuelled the sales afterwards. This time too, the post-lockdown period is expected to replicate last year’s trend and this time in an even greater manner as there has been a rise in positive cases resulting in deaths, because of the negligence in social distancing norms during last year’s unlock phase.

Also, there is fear about the upcoming third wave of the pandemic. This situation is expected to drive more consumers to opt for personal mobility as a necessity instead of considering it just an option. More consumers will choose personal vehicles to make sure they are safe and avoiding shared mobility.

2

Pent-up demand

Pen-up demand helped the surge of auto sales last year, during the unlock phase. This time too, a similar picture is expected to be there. It has been seen in the past that every time there is a drop in the sales volume, the number bounces back with increased demand. If the automobile manufacturers start providing the right discounts and offers, the industry might witness a great positive rebound.

3

Improved auto finance

The retail financing business is facing a high volatility in recent times. The real estate prices are on a spiraling drop, which is making the case for other retail finance products. In such a scenario, automobile financing could turn out to be a stable priced and safe investment with considerable consistent return amount for the financing entities such as banks and the NBFCs.

4

Low base

Last year was not a good one for the Indian auto industry, in terms of sales volumes. Throughout the whole of 2020, the auto industry faced consistent constraints, resulting in rather low wholesale numbers for all the manufacturers, majorly driven by the zero sales in April 2020. Afterwards, several other crises impacted the industry, which includes local lockdowns, supply chain issue, logistics issues, microchip crisis etc. All of these problems impacted the industry’s wholesales numbers. Hence, the base is low this year to start with.

5

Increased government spending

In the Union Budget 2021, Finance Minister Nirmala Sitharaman indicated that the central government is aiming to increase spending on infrastructure development. It is true that the government is shying away from spending huge amounts on infrastructures such as roads and highway networks. This is expected to boost the demand in the auto sector in the coming days post-lockdown, with the continuing focus on infra spending.

6

Good monsoon

In a country like India, where the economy is majorly driven by the agriculture, monsoon plays a key role for development in various sectors and auto industry is one of them. In 2021, the projection is for a favorable monsoon, which would result in a decent amount of disposable income in the hands of common people, especially in the rural belt. The growth of sales in two-wheelers and utility vehicle segments are majorly dependent on a good monsoon.

7

Improved supply chain

Unlike the first lockdown, when the supply chain of the automobile industry was hugely disrupted, this time, the industry is more prepared than before. The supply chain constraints are not like last year. The PLI scheme by the Indian government is aiming to promote local manufacturing and make the automobile industry self-sufficient without much reliance on import. This too shall play a key role in the industry's rebound.

  • First Published Date : 26 May 2021, 03:41 PM IST