Local lockdowns keep retail auto sales in the slow lane

Car sales have gone down in the month of May this year due to lockdowns implemented across states and many manufacturers even temporarily halting operations to break the chain.

Auto sales fell across categories in May and the outlook continues to remain muted. However, with the gradual easing of lockdown restrictions since the beginning of June, dealerships have started opening up across several states and districts.

After observing maintenance shutdowns at their plants in May spanning from a week to a fortnight, manufacturers have also resumed production.

During May, Maruti Suzuki observed a 16-day shutdown at its plants and around 80 per cent of its showrooms across the country remained closed because of local lockdowns. Similarly, Hyundai’s plant in Chennai remained closed for around 10 days – five days for annual maintenance shutdown and another five due to workers’ agitation for closure because of the rising Covid cases in Tamil Nadu. The company’s showrooms remained opened only in just 4-5 towns/cities.

The retail sales numbers for May announced by the Federation of Automobile Dealers Associations (Fada) on Thursday cannot be compared to the same month last year as there was a nationwide lockdown at the time. Compared with the same month in 2019, which was also not a good year for auto sales, the numbers declined across categories – overall sales declined 71 per cent. On a month-on-month basis too, they fell by 55 per cent.

The association said the first nine days of June saw better-than-expected sales due to pent-up demand and going by this pace, the month may see sales almost equivalent to June 2020. Fada, however, said the overall demand recovery will be slow as the rural markets continue to struggle with post-Covid effects.

According to Fada, the average inventory for passenger vehicles ranges from 20-25 days and the average inventory for two-wheelers ranges from 25-30 days.

The association has appealed to the OEMs who are yet to announce a financial package for their dealers to do the same urgently. It also appealed to the government that instead of restructuring, banks should allow a moratorium of 90 days to all categories of dealers without keeping a turnover limit. This is required as auto retail trade works on the principle where dealers get funded by financial institutions in terms of inventory funding for a period of 30-45 days (depending from bank to bank) to purchase vehicles from auto OEMs.

Since the current lockdown has already lasted well over 30-45 days and is still continuing in south India, revenue for most of the dealers are negligible as there were minimal sales. Due to this, dealers will not be able to repay their loan tranche payment which is getting due. This will ultimately lead towards default, Fada said.

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