RBI's rate hike to hit the brakes on auto sales: FADA

The Reserve Bank of India's (RBI) move to hike the repo rate by 40 basis points will make auto loans expensive, slamming the brakes on vehicle sales, according to the Federation of Automobile Dealers Associations (FADA).

The dealers' lobby warns that high interest rates for vehicle loans will be an additional blow for the two-wheeler segment, which is already reeling due to an underperforming rural market, vehicle price hikes and high fuel costs.

Meanwhile, automobile sales jumped 37% year-on-year in April 2022 but still remained 6% lower compared with the pre-Covid-19 month of April 2019, the data released by FADA shows.

Passenger vehicle sales soared 25.47% year-on-year to 2,64,342 units last month compared with 2,10,682 units in April 2021 when the country witnessed a lockdown amid the second wave of the pandemic. PV sales in April 2019 stood at 2,36,217 units.

When compared with the pre Covid-19 month of April 2019, except PV and tractor sales, which were up by 12% and 30%, all the other categories like two-wheelers, three-wheelers and commercial vehicles were down by -11%, -13% and -0.5%, respectively.

"The month of April saw similar auto retail figures as March'22. While YoY comparison with April'21 shows all categories in green with high growth rate, it is important to note that both April'21 and April'20 were affected by nationwide lockdown due to phase 1 and 2 of the Covid wave, which witnessed no to negligible business. Hence, a better comparison will be with April'19 which was a normal pre-Covid month," says FADA president Vinkesh Gulati.

With the ongoing Russia-Ukraine war and China under lockdown, the global auto industry continues to witness supply crunch as semiconductor shortage along with high metal prices and container shortage prevails, says Gulati, adding that customers of the PV segment, hence, continue to witness long waiting periods.

Two-wheeler sales rose 38% year-on-year to 11,94,520 units last month compared with 8,65,628 units in April 2021. In April 2019, two-wheeler sales stood at 13,38,382 units.

The two-wheeler segment, which has witnessed slight increase in sales when compared to last month, is extremely sensitive to price hikes and continues to remain below pre-Covid-19 levels, says Gulati. "It is a clear sign that Bharat has not been keeping up with India. Apart from rural distress, multiple price hikes, coupled with high fuel prices, are keeping price sensitive entry level 2W customers away."

Commercial vehicle sales grew 52.18% year-on-year to 78,398 units in April. However, CV sales last month fell 0.5% compared with April 2019. The CV segment, after a long downturn which began post the announcement of axle load norms in 2018, is now witnessing demand recovery as all subcategories continue to inch north, says Gulati. The government's push for infra spending further aids this category, he adds.

FADA changed its stance from "extremely cautious" to "cautious" in terms of slight recovery in the near term. "Private consumption is regaining traction backed by a recuperating contact-intensive services and rising discretionary spending. Also, Skymet has come out with its normal monsoon forecast. If the same is evenly distributed, it will have a positive rub-off on rural sentiment as farmers will be able to get better crop realisation thus increasing their disposable income. It will thus benefit tractor and 2W sales. This along with marriage season in coming days will also see a traction in auto retail," says the dealers' lobby.