Single digit growth expected in passenger vehicle sales this festive season

- Sales will be low in the financial year 2020-21, except for marginal growth during the festive season

- Auto industry is expected to see a positive growth trend from FY’22 onwards

We have witnessed a significant improvement in car sales in the second quarter of the fiscal year 2020-21. The first half was affected due to the complete lockdown announced by the government due to the Coronavirus (COVID-19) pandemic. With the relaxation in norms, there is a healthy improvement in car sales in the country. The improvement in sales can be attributed to clearance of back orders, as well as a growing number of customers seeking a personal mode of commuting rather than taking public transport in the pandemic world. Moreover, a spate of recent launches has also been luring in new buyers. 

With the onset of the festivities in the coming days, the vehicle manufacturers in the country often report a significant hike in sales. This time around, based on our interaction with officials from ICRA Limited, we learn that car dealers might witness a single-digit growth of anywhere under 10 per cent as compared to the festive season sales in 2019. In an effort to boost sales, apart from the regular offers and discounts by the dealers, OEMs have collaborated with financial institutions to offer easy funding for the vehicle. Apart from the loan moratorium, the government is yet to announce any support to the auto industry. 

To further get an insight into car sales in the festive season, we reached out to Vinkesh Gulati, President, Federation of Automobile Dealers Association (FADA). Based on our interaction, car sales in the festive season is expected to be marginally higher than the same period in 2019. The spike in demand during the festive season is attributed to new car launches and auspicious period to start something new. However, the sales are likely to decline post the festive season and will continue to be slow till the end of the fiscal year 2021. Once the economy improves, the auto sector is likely to be the first one to bounce back to normalcy. The Coronavirus (COVID-19) pandemic has affected almost all major sectors, including the auto industry. The commercial vehicle and the two-wheeler segment are the ones to be heavily affected in modern times. That said, the auto industry is gradually limping back to normalcy and it will heal at its own pace.   

Some of the crucial findings by the ICRA survey are as follows –

- Indian market is witnessing a slow-paced recovery unlike the Chinese market 

- Rural market will be the key drivers in FY’21, wherein entry-level and UVs will benefit 

- Demand for diesel utility vehicle will decline below 40 per cent in the next two years; Volkswagen and Maruti Suzuki India Limited have exited the diesel portfolio 

- Industry volume to witness double-digit growth of under 15 per cent in FY2022, after witnessing a decline in sales for two consecutive years

- Discounts in midsize sedans and diesel vehicles are relatively high

- Entry-level cars are witnessing a waiting period as customers are opting for more affordable variants over higher-spec variants

- There is a higher demand for two-wheelers and used cars as people try to avoid public transport

- In recent times, there is an increase in used car prices 

Conclusion: 

Except for marginal improvement in car sales in the festive season, the cumulative sales in the current fiscal year will be low as compared to sales in the last five-years. That said, post improvement in the Indian economy, the auto industry is likely to see an upward growth from FY’22 onwards.