Motown Stares At Decadal-low Car And Truck Sales

India's automobile industry is headed for another year of double-digit sales decline this fiscal, given the extended lockdown to contain the Covid-19 pandemic, rating agency CRISIL has stated.

"Overall sales volume would plunge to multi-year lows, with sales of passenger vehicles (PVs) and commercial vehicles (CVs) reaching fiscal 2010 levels.

What started as a supply-side pain has quickly engulfed the demand side, too, with job-loss and pay-cut fears dampening consumer sentiment," the firm has stated.

Says Hetal Gandhi, Director, CRISIL Research, "Automobile sales are running out of steam as urban income sentiment wilts under the pandemic. We assessed 26,000 companies that have a total employee cost of Rs 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."

According to Crisil, given this, PVs, a big-ticket item with a replacement share of 60-70%, are expected to see purchasing decisions postponed. That's also because the segment has a high finance penetration of 78-80% and given the income uncertainty, fewer consumers would be willing to take a loan.

"At the other end, CV sales have been languishing under the impact of new axle-load norms, and are unlikely to show much recovery till freight demand remains low.

However, tractors and two-wheelers are likely to see relatively faster recovery in the second half of this fiscal. Both the segments benefit from a bumper rabi production and the forecast of a normal monsoon, which augur well for rural incomes.

Within two-wheelers, which have a lower replacement share of 50% and lower finance penetration of 35-40%, motorcycles are expected to fare better, riding on rural demand," CRISIL has stated.

Says Pushan Sharma, Associate Director, CRISIL Research, "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%."