, Edited by Explained Desk | New Delhi |
Updated: July 2, 2020 4:27:44 pm
Coming out of lockdown, the Indian automobile sector is drawing a close parallel with the recovery trend seen in China. If the sale in April was nil for most manufacturers following stringent lockdown restrictions, almost all manufacturers reported 80 to 90 per cent dip in domestic sales in May.
In June, however, the pace of decline slowed down and Maruti Suzuki and Hyundai Motors that together command nearly 70 per cent market share, announced 53 and 49 per cent decline in sales over that in June 2019.
So, there has been a recovery in month-on-month numbers. While Maruti announced a 3.8 times jump in June over May, Hyundai too reported over three times rise in sales in June.
Here’s a look at what is leading to the recovery and how has it been in China:
What is leading to the recovery in India?
Demand for compact small cars mostly by first-time buyers is driving the car sales in India besides the pent up demand due to stringent lockdown restrictions in April and May. Top executives at leading automobile companies say the new realities of social distancing and scare of contracting the virus is driving more and more individuals, who were earlier dependent upon public transport, to buy a car. “A big part of the recovery in demand is from people who want to avoid public transport and want to have their own vehicle,” said Shashank Srivastava, ED, sales and marketing, MSIL adding that small cars are getting lot of traction.
While urban areas have been more impacted by Covid-19 and the lockdown, industry players say that rural India is witnessing a faster recovery.
Manufacturers are expecting the recovery trend to remain strong as the inquiries and booking are rising fast. “The inquiries and bookings has reached 80-85 per cent of pre-covid levels,” said Srivastava.
How was the recovery in China?
Since the Covid cycle started early in China and peaked in January and February 2020, the recovery path is at least 4-5 months ahead of it could be for India. While the vehicle sales in China plunged 79 per cent in February, the dip slowed down to 40 per cent in March over the previous month last year. In April, retail car sales in China softened further to 5.5 per cent and in then in May the sales growth turned positive, rising 1.9 per cent over that in May 2019.
This shows a clear and sharp recovery in auto sales in China post the reopening of the economy. Several manufacturers in China attributed this to growing demand from first-time buyers as they looked to stay away from buses and trains that could expose them to Covid-19.
Which segment is seeing the demand in India?
Data released by MSIL shows that the best recovery was for the mini segment comprising Alto and S-presso. The entry level segment regained 56 per cent of the sales it had in June 2019. In terms of numbers compact segment which comprises WagonR, Swift, Celerio, Ignis, Baleno, Dzire and Tour S — accounted for 26,695 cars sold. The mini and compact segment together accounted for sale of 37,154 cars or 72 per cent of June sales for the company.
Even for Hyundai, while the breakup is not available, a company official said its small cars and the compact SUV Venue witnessed sales recovery.
It is important to note that companies who do not have small cars in their portfolio have lagged in recovery in June.
While Mahindra and Mahindra registered a 43 per cent recovery over sales in June 2019, the company said it witnessed recovery on account of rising rural demand and movement of essential goods. While Toyota Kirloskar Motors regained 37 per cent of its sales in June 2019, in case of Honda cars India the June 2020 sale was only 14 per cent of that in June 2019.
📣 Express Explained is now on Telegram. Click here to join our channel (@ieexplained) and stay updated with the latest
Is the recovery momentum expected to continue?
Both Maruti Suzuki and Hyundai Motors say their enquiries and bookings are on a steady rise. The companies are also raising their production levels. Currently operating two shifts, both the manufacturers are on path to operate all three shifts going forward. The fact that demand is on the rise, the elimination of production and supply bottlenecks will only improve the sales efficiency going forward.
Shashank Srivastava, ED, sales and marketing at MSIL said that while the demand from the consumer side has achieved 80-85 per cent normalcy, the industry is still at around 50 per cent normalcy when it comes to wholesale sales.
However, that is improving with every passing week. A visit outside the Manesar plant of MSIL showed that the company is calling local workers from nearby districts in Haryana to join work at the plant as it is ramping up production. Almost 2,000 of the 4,500 trucks carrying finished vehicles and supplies on a daily basis are back and number of buses transporting workers has risen from around 100 in May to around 250 by the end of June.
Why is auto sector important ?
While the Indian automotive industry accounts for over 7 per cent of the country’s GDP, it accounts for 22 per cent of the manufacturing GDP. According to the industry body Society of Indian Automobile Manufacturers, the industry supports more than 3.7 crore employment and with GST collections of around Rs 1,50,000 crore, it accounts for nearly 15 per cent of total GST collection of the country in a year. The auto sector is also one of the biggest recipient of foreign direct investment and between April 2000 and March 2020, the sector has received FDI amounting to $ 24.2 billion.
What could hinder the revival momentum?
Given the fact that a Covid-19 vaccine is still some time away, a spike in Covid-19 cases in India both in rural and urban India may just derail the recovery momentum and force the centre and states to go slow on reopening the economy or to even close certain activities that have been permitted. It may also limit the movement of workers, derailing the production revamp process for the industry.
United States can be seen as an example. As the number of cases witnessed a jump over the last couple of weeks, several states have gone back on their course of reopening.
So, as India reopens and continues from Unlock 1 to 2 to 3, it needs to closely monitor the case numbers and containment zones in order to avoid the community spread.
📣 The Indian Express is now on Telegram. Click here to join our channel (@indianexpress) and stay updated with the latest headlines
© The Indian Express (P) Ltd