The double whammy of economic slowdown, compounded by the lockdowns to contain the spread of COVID-19 in the country, will lead to a decadal-low sales of cars and trucks this year, Crisil Research said in a report on the sector.

It said the industry’s capacity utilisation would plunge below 50% from 58% and that it was headed for another year of double-digit sales decline this fiscal, given the extended lockdowns.

It said the current slump was deeper and that recovery would take twice the amount of time.

While there are supply constraints, demand sentiment will remain weak for the second year in a row; a reversal is expected in FY22. It said the credit outlook of the sector would remain moderately negative in FY21.

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

Job loss and pay-cut fears would dampen consumer sentiment.

Hetal Gandhi, director, Crisil Research, said, “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 ₹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,” she added.

This segment will stay away from buying high-value items, thus impacting demand.

“Given this, PVs, big-ticket items 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,” she said.

Crisil said 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, it said.

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, it said.

Pushan Sharma, Associate Director, CRISIL Research said, “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%,”’ he said.

As per CRISIL’s calculations a recovery in demand is expected only from the festival season in the third quarter of this fiscal – and largely for two-wheelers and tractors, which have a higher rural share.

“PVs and CVs, which have a higher share of replacement demand, are expected to recover only in the fourth quarter,” CRISIL said.

For the fiscal as a whole, sales of PVs are expected to decline 24-26%, compared with a 21-23% contraction for two-wheelers. CV sales are expected to decline 26-28%, it said adding tractor sales are likely to fall only 7-9%.

CRISIL said a recovery will be seen in FY22 from a low base. In that year, while PV will grow 17%, CV will grow 40%.