Supply-Chain Issues Hurt India’s Auto Sales In June, Says SIAM

India’s automobile sales tumbled in June, the first full month of economic activity since the nationwide lockdown to curb the coronavirus pandemic.

Domestic sales of passenger vehicles declined 49.59% year-on-year to 105,617 units last month, according to data released by the Society of Indian Automobile Manufacturers. While monthly factory-gate car sales fell 57.98% over the last year to 55,497 units in June, shipments of utility vehicles declined 31.16% to 45,201 units.

SIAM released the wholesales for the first time since India implemented the world’s strictest stay-at-home restriction in March.

The automakers’ lobby, however, will only report quarterly sales of commercial vehicles. The decision, according to Rajan wadhera, president at SIAM, was made after request from original equipment makers.

Auto and auto component makers—which together contribute more than 7% to India’s gross domestic product—have been trying to push up sales since the Diwali festival season in 2018. First, an increased upfront insurance cost, coupled with a broader consumption slowdown and disruptions caused by BS-VI emission norms, hurt sales. Then the coronavirus lockdown completely stalled operations at companies and dealerships. While SIAM didn’t release the data, automakers reported a sales washout in April and a marginal uptick in May as restrictions eased.

Here’s how each segment fared in June:

• Scooter sales declined 47.37% year-on-year to 268,811 units in June.
• Motorcycle sales fell 35.19% to 792,970 units.
• Total two-wheeler sales dropped 38.56% over the year-ago period to 1,013,431 units in June.
• Total three-wheeler sales declined 80.15% to 10,300 units in June.

How each segment fared in the April-June period:

• Passenger vehicles sales fell 78.43% year-on-year to 153,734 units.
• Commercial vehicles sales declined 84.81% to 31,636 units.
• Three-wheeler sales were down 91.48% over the year-ago period to 12,760 units.
• Two-wheeler sales dropped 74.21% to 1,293,113 units.

In 2001 the passenger vehicle slowdown lasted five quarters, while the ongoing slowdown, which is the steepest, is spread over nine quarters, said Rajesh Menon, director-general at SIAM. This is the longest slowdown in two decades for passenger vehicles and in 15 years for two-wheelers.

According to Wadhera, it’s clear that the industry has been suffering hugely on the demand front. “We are staring into a very deep slowdown, led by Covid-19 now. World-over, the auto industry has been supported in the form of stimulus to boost demand. We haven’t given up, and are speaking with the government, and are looking for a stimulus.”

There is a strong need for demand stimulus like it was done in 2008 and 2014, wadhera said. “We are in discussion with the government for over a year now to provide fiscal stimulus,” he said. “A 10% GST (goods and services tax) reduction across all vehicles categories will go a long way.” The introduction of incentive-based scrappage policy will also generate demand, he said.

Wholesales Lagging Retail

There's a slowdown on the supply side leading to lower wholesale numbers, according to Wadhera.

"The industry is facing supply chain issues because of delays in clearing of import products, and lack of migrant labours, restriction in movements due to shutdowns are leading to production stoppages," he said. The link in the supply chains, he said, are broken and will take time to repair.

Retail numbers, according to Wadhera, are also higher because of the pent-up demand.

Recovery To Take Time

According to Wadhera, it will take as many as four years for the automobile industry to reach volumes last seen in 2018. "Even that estimate is extremely optimistic. I'm being very brave if I say we will reach 2018 volumes by 2023 or 2024, and it is only possible if the GDP growth is 10-12%."

The investments, according to him, will further take a hit as the companies will not invest in new products or expand production capacity due to a massive dip in volumes.

Also, there is no case for investment in electric vehicles right now as automakers invested heavily in BS-VI and plant capacity, Wadhera said. "We don’t see auto companies recovering without stimulus."