There is a virtual lockdown in the world’s fourth largest automobile market
- India’s car makers as well as two wheeler companies, from Hero Moto to GM, are in a fix as local lockdowns are forcing plant shutdowns.
- The surge in COVID-19 cases has also dented consumer demand. People are even cancelling earlier orders.
- A survey of dealers, including the ones of Maruti Suzuki, shows that sales in April may be down anywhere between 30% to 70% across major states.
- This also poses yet another threat to millions of people employed in the sector and the slump could cascade into consumer products as well.
A drastic, and sustained, rise in COVID-19 cases across the country have caused localised lockdowns, forcing auto makers and dealers to temporarily shut down their facilities.
Not only have new orders fallen, people are even cancelling the bookings made earlier. In states like Uttar Pradesh and Madhya Pradesh, dealers are reporting 40% to 60% fall in sales compared to the pre-COVID data i.e. year ending March 2019, according to Motilal Oswal which surveyed dealers across major states.
Source: Motilal Oswal report dated April 17, 2021.
|State||Estimated fall in April 2021 sales (vs FY19)|
|Uttar Pradesh and Madhya Pradesh||40% to 60%|
|Maharashtra and Chhattisgarh||30% to 40%|
|Gujarat||30% to 70%|
|Rajasthan||30% to 50%|
And, so production also has come to standstill...
Hero MotoCorp, one of the leading two-wheeler manufacturers, has announced a nationwide shutdown of its plants for four days between April 22 and May 1. The maker of the popular Splendor bike said that despite its 4-day shutdown and production halt, it will not have an impact on its ability to meet demand, according to the company’s exchange filing.
General Motors, the US-based car maker, fired all its 1,419 employees in its Talegaon plant in Pune. The company’s director of communications, George Svigos, told Economic Times that no vehicles were manufactured in the last four months.
If this seems like déjà vu of the story that unfolded in the first half of 2020 during the first wave of the COVID-19 pandemic. From Maruti Suzuki to Hero MotoCorp, Indian companies are already facing the heat. All the top ten automobile companies in India have seen a decline in their share prices in April, with some of them registering a double-digit decline.
All automobile makers are facing the heat
The negative consumer sentiment and the possibility of another lockdown has had an impact on auto ancillary makers as well. However, some of them have managed to weather the storm for now.
This will have collateral damage too
“If the markets are shut, then demand will fall. Any prolonged shutdown will mean demand will go down. Production cannot continue if sales stop. You can’t run factories if dealerships are shut. It doesn’t make sense,” RC Bhargava, Chairman, Maruti Suzuki (India’s largest car maker) told TOI.
The impact of lockdowns and curfews will have a spillover effect on auto dealers as well. John K Paul, managing director of Popular Vehicles, one of Kerala’s largest Maruti Suzuki dealers, told ET Auto that he expects retail sales for the last year to be down 45%-50%.
AdvertisementThe slump in auto sales last year led to large scale layoffs in the auto sector and the same threat looms large again.
The future’s looking bleak
One could take heart from the swift recovery in car sales after last year’s lockdown but that miracle may not repeat itself this time. Optimism is scarce and people have lesser savings than they did last year. So, the pent-up demand may be missing this time around, according to analysts.
Making matters worse, both two wheeler makers and car makers have had to increase prices due to the shift to BS-6 models (with less emissions) as well as a rise in raw material prices.
The rise in price may be a deterrent for those on the fence about buying a new vehicle.
Source: Motilal Oswal
|Models||BS6 models Price hike (compared to April 2020)|
|TVS Apache RTR 160 Rear Drum||+14.7%|
|Hero Moto: Deluxe SS||+8.3%|
|Bajaj Pulsar 150 ABS||+7.2%|
|Royal Enfield Classic 350||+6.5%|
|Honda Activa 5G DLX||+6.4%|
The big companies may even recover later. Another slump in the sector may be fatal for many small businesses that depend on the big industry for their survival.
AdvertisementMillions of people who work in the sector, directly or indirectly, are likely to save more expecting hard times ahead. That is if they still manage to keep their jobs. The reduced consumption is likely to take a further toll on the economy.
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