COVID-19 impact | Indian auto industry pushed back by four years

A potent mix of demand slowdown, switchover to new emission norms and COVID-19 has pushed the Indian automotive market back by four to five years.

Sales of almost each of the vehicle segments, including commercial vehicles (CV), passenger vehicles (PV) and luxury cars, clocked in FY20 are at the same level as FY16, according to data available with the Society of Indian Automobile Manufacturers.

Domestic sales of trucks and buses (CV) in FY20 stood at 7.17 lakh units. FY17 had seen sales of 7.14 lakh units. In FY19 the CV segment saw its best year ever with sales crossing 1 million units for the first time.

The biggest cause of the fall in CV volumes last year was the excess load capacity created in the market due to changes made to the axle load norms. Though the loading norms, which legalised overloading by 25-30 percent, were changed in the middle of 2018, its effects continued well into FY20.

What impacted truck and bus sales further was the gradual scaling down of the now outdated Bharat Stage IV (BS-IV) stock from the dealerships year. Sales of BS-VI vehicles to the retail customers could not begin before April 1 due to non-availability of BS-VI fuel.

Rise in insurance and vehicle ownership costs, price hike by companies and tighter lending norms by banks choked the passenger vehicle segment during FY20. The segment comprising cars, sports utility vehicles and vans contracted significantly to close at FY16 levels.

Domestic PV sales closed at 2.77 million units in FY20. It stood at a similar level in FY16 when sales were reported as 2.78 million units. FY19 proved to the best year for the PV segment too when sales reached 3.37 million units.

Last year also saw the elimination of several models which companies were reluctant to upgrade to BS-VI norms due to uncertainty over their demand. These included Tata Nano, Tata Sumo, Maruti Omni, Hyundai Eon and Renault Lodgy.

The drop in two-wheeler sales in FY20 was not as bad as other auto segments as their sales for last year were comparable to what the sales were four years back.

Comprising seven major two-wheeler manufacturers the two-wheeler sales clocked volumes of 17.41 million units in FY20 as against 17.58 million clocked in FY17.

The price sensitive two-wheeler buyer was hit by spike in insurance costs , product price hike and high ownership costs during FY20. The final quarter of last year also saw the launch of BS-VI models that came at a 10-15 premium than the outdated BS-IV models.

Luxury car volumes (comprising Mercedes-Benz, BMW, Audi, Jaguar Land Rover and Volvo) dipped to a three-year low during the calendar year 2019 to 35,274 units. The five companies had together sold 32,819 units during 2016 which was the segment’s previous low.

Outlook for FY21

April recorded a first-ever washout month in the history of Indian automotive scene when zero sales were recorded by each vehicle category. With a staggered ramp up in production beginning this month the first half of the year will be challenging, say experts.

“With the already existing slowdown during FY20, the industry is likely to suffer huge losses going forward. Even if the pandemic is curtailed, the consumer sentiments are expected to be unfavourable and demand is expected to remain muted during H1 FY21 led by volatile economic conditions. Also, government spending on infrastructure is expected to be low during the period, further impacting the demand for commercial vehicles,” stated a report by CARE Ratings.

Companies are looking to postpone new model launches and go slow on new capacity additions in light of the expected slowdown after the lockdown is lifted. Investments are being relooked and cost cutting is being pursued aggressively by every company.

“There is discussion about realigning and reviewing each and every plan. This could be about launch of new models, development of network infrastructure or even assessing the capacity utilisation for the future,” said Y S Guleria, director (sales and marketing), Honda Motorcycle and Scooter India.

“The outlook for FY21, especially the first half, remains weak given the macroeconomic headwinds in view of recent pandemic outbreak coupled with significant price hikes because of transition to the new emission norms. Any recovery in the latter half hinges on pick-up in construction activity,” said a report from ICRA talking about the medium and heavy commercial vehicle.