Supply Constraints Hurt Auto Sales In June, Say Analysts
Auto wholesales declined in June on supply-chain constraints, even as improving rural demand and preference for personal vehicles amid the pandemic drove demand, according to three brokerages.
Factory-gate shipments of passenger cars, two-wheelers and commercial vehicles tumbled in the range of 6%-79% year-on-year in June, according to data compiled from the reports of three brokerages—Nomura, Emkay Global and Motilal Oswal. The Wholesales, however, surged over the preceding month as economic activity resumes after India eased lockdown curbs.
Analysts expect tractor sales to normalise to pre-pandemic levels as rural sentiment has improved—thanks to a bumper rabi harvest, high reservoir levels and forecast of normal monsoon.
Demand for passenger cars and two-wheeler, too, witnessed a recovery over the previous month but is largely skewed toward semi-urban and rural markets. Urban demand remains muted owing to stricter curbs.
Commercial vehicle sales are relatively lower than other segments due to surplus fleet capacity, low economic activity and stringent financing, analysts said.
India’s automakers have been trying to push 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. The automakers had witnessed a sales washout in April and a marginal uptick in May as restrictions eased.
Overall retail sales outlook, too, remains bleak. That’s despite a substantial pickup in demand over the previous month.
“Urban demand will continue to face challenges ahead with the Covid-19 uncertainty. On the flipside, the government’s push for infrastructure spending and the recent positive measures announced for agriculture sector will help support rural demand,” said Ashish Kale, president at Federation of Automobile Dealers Associations. “It will further strengthen with the normal spread of monsoon which will help Tier-II and III dealers face lesser de-growth compared to their urban counterparts.”