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India's Covid-hit auto sector is buzzing once again, thanks to massive pent-up demand and the emergence of a new class of buyers who want to avoid public transport because of pandemic fears. But experts are not sure if this signals a turnaround for the industry.
The headlines say it all, or do they That is the question that's topmost in the minds of India's automobile industry captains as well as sector analysts and economists who consider the industry a bellwether for the Indian economy. Consider these facts:
Green shoots of recovery are visible across the Indian automobile sector, which had been in the doldrums for the past seven to eight quarters.
* Kia Motors India recently said it had received over 50,000 bookings since bookings opened on August 20 for its newly launched sub-compact SUV Sonet. Company sources said a new Sonet is being booked every three minutes.
* Maruti Suzuki India, the Indian subsidiary of the Japanese auto major and India's largest passenger car company, reported a 34 per cent increase in vehicle sales in September 2020 compared to September last year. This is the first time that the company has been able to dispatch 150,000 cars a month since the lockdown.
* Mahindra & Mahindra (M&M) also recorded modest 4 per cent overall sales growth in September. "At Mahindra, we are happy to witness a growth of 6 per cent in utility vehicles.... the enquiry and booking levels in September were significantly higher compared to the previous months...," Veejay Nakra, CEO, Automotive Division at the company told the media.
These are not isolated cases. Such green shoots of recovery are visible across the Indian automobile sector, which had been in the doldrums for the past seven to eight quarters. India's second-largest passenger vehicle maker Hyundai Motor is also seeing robust sales leading up to the September-December festive season. The market scenario is also looking much brighter for Tata Motors, Toyota, Skoda and other car makers. Even luxury car maker Mercedes Benz is reporting improved sentiment compared to previous quarters.
The wholesale numbers make for very happy reading. Passenger vehicle dispatches to dealers zoomed 26 per cent compared to the same month last year. For motorbikes and scooters, the figure was 12 per cent.
Retail sales of passenger vehicles also grew, compared to last year, by a healthy 10 per cent but motorcycle sales fell 12 per cent.
More to read:
These figures and the upbeat sentiment are very important not only for the auto sector but for the Indian economy as a whole because it accounts for more than 40 per cent of the country's manufacturing GDP and employs 37 million people. Then, the $55-billion auto components sector, employs three million people, making it the auto sector the largest employer in the organised sector. It is also the biggest Make in India success story as the country has emerged as a major global hub for small car production and exports.
India is also the fourth-largest passenger vehicle producer in the world. In 2018-19, it produced 4.06 million cars. That number is expected to fall this year as a result of the Covid pandemic, but the country is still expected to retain its position in the global pecking order. There are currently about 30 million cars on Indian roads.
India's large young population as well as growing rural prosperity are also driving the sales of two-wheelers in the cities and also in Tier II towns and beyond. The recovery of the auto sector will play an important role in putting the overall economy back on track.
The industry expects a bumper sales season during the September-December festive months, when many Indians spend big money on buying and gifting various items, including cars and motorbikes.
Still more to read:
After a very muted first quarter of 2020-21 and some signs of recovery in the second (July-September), car makers are expecting pent-up demand to push car sales in the third (October-December) quarter of the current fiscal to go through the roof.
With the Covid pandemic making social distancing the norm, many more Indians are now trying to avoid crowded spaces like bus stops and public transport. This is another factor that is pushing car sales in the country.
Result: There is anecdotal evidence to show an increase in the demand for used cars. This, in turn, is driving a secondary demand for new cars that owners are using as replacements for the cars they have sold.
However, despite the expected boom in auto sales this festive season, industry insiders are keeping their fingers crossed about the future. “Need to see what happens after the festive season. We are hoping for a sustained demand going ahead,” the Indian media quoted Kenichi Ayukawa, President of the Society for Indian Automobile Manufacturers (SIAM), the apex Indian automobile lobby group and Managing Director of Maruti Suzuki, as saying.
It must also be borne in mind that despite the revival in demand, the auto sector, as whole, is expected to end this fiscal with 10-12 per cent lower sales than last year.
It is still not clear if the Indian automobile sector has turned the corner or whether the current boom is a happy combination of factors - such as festive consumption, pent-up demand and social distancing norms - that is driving the demand revival. The industry, economists and a whole of lot Indians will, however, be hoping it is the former.