Two-wheeler maker TVS Motor sees a delay in the revival of the sector as buyers are likely to conserve cash in the backdrop of job losses and salary cuts, and defer purchases of non-essentials.
However, the markets could offer sales opportunities following a good monsoon and a shift in consumer preference towards personal mobility, CMD Venu Srinivasan said in a letter to shareholders.
Change in preferences
COVID-19 had caused paradigm shifts in consumer behaviour that affected many industries including automobiles, Mr. Srinivasan wrote. Due to the pandemic, social distancing and work-from-home (WFH) practices would see greater prevalence. “People may move away from the use of shared/public transport solutions,” he wrote. “These new long-term practices of social distancing and WFH could see consumer preferences change towards personal mobility, which could provide an opportunity, especially to the two-wheeler industry.”
According to him, restriction on public mobility and the impact on many sectors of the economy will affect GDP, disposable incomes and consumer sentiment and the auto industry as well.While the pandemic and curbs would likely cause a very sharp decline in sales in the first quarter, conditions would likely “partially alleviate in the following quarter,” he wrote.
“Favourable reservoir levels, good rabi output and possibility of normal monsoon may support agricultural growth. It is to be noted that much of the sale of two-wheelers are in semi-urban and rural areas which could see some benefit of this.”
On the other hand, Mr. Srinivasan wrote the severity of impact would be higher at the lower-to-mid-income customers, who form bulk of the commuter two-wheeler industry.
Consumers will conserve cash, in view of unforeseen events such as potential job loss and salary cuts levels. This will lead to delay in purchase of all non-essential durables, and may pose a risk to many industries in the manufacturing sector, including automobiles. This may result in delayed recovery of the two-wheeler industry, he cautioned.
Stating that export of two-wheelers would decline in the initial part of the year due to the pandemic, he said that a sustained trend of low crude prices might also impact export market growth in oil-dependent economies of Africa.
“However, the economic impact of COVID-19 is expected to be more pronounced in the markets of LATAM, whereas the African countries seem to be lesser impacted, and the core demand may return sooner,” he said.
During FY20, TVS Motor reported a drop in its domestic sales to 24 lakh units from 31 lakh units, mainly on falling consumer sentiment and rapid increase in the cost of ownership towards higher mandatory insurance costs and enhanced safety norms. At the end of the year, a planned transition from BS IV to BS VI stock also affected the auto sector.