Job-loss and pay-cut fears to dampen consumer sentiment: Report
The automobile industry is staring at multi-year lows in sales volume, with sales of passenger vehicles (PVs) and commercial vehicles (CVs) likely to reach levels of fiscal year 2010, according to a report by Crisil Research. The industry will see another year of double-digit sales decline this fiscal due to the extended lockdown, it said.
A recovery in demand is expected only during the festival season in the third quarter — and largely for two-wheelers and tractors, which have a higher rural share, the credit rating agency said. PVs and CVs, which have a higher share of replacement demand, are expected to recover only in the fourth quarter, it said. For the fiscal as a whole, sales of PVs are expected to decline 24-26 per cent, compared with a 21-23 per cent contraction for two-wheelers. CV sales are expected to decline 26-28 per cent, while tractor sales are likely to fall by 7-9 per cent, the report said.
What started as a supply-side pain has engulfed the demand side too, with job-loss and pay-cut fears dampening consumer sentiment, it explained.
“Automobile sales are running out of steam as urban income sentiment wilts under the pandemic. We assessed around 26,000 companies that have a total employee cost of ₹7 lakh crore. It indicates that over 60 per cent 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,” said Hetal Gandhi, Director, Crisil Research,
Given this backdrop, PVs, with a replacement share of 60-70 per cent, are expected to see purchasing decisions postponed, Crisil said. The segment also has a high finance penetration of 78-80 per cent and given the income uncertainty, fewer consumers will be willing to take a loan, it added.
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Published on
May 28, 2020
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