Retail vehicle sales drop 10.7% in Jan, chip shortage hurting

Vehicle sales took a hit during January as the global semiconductor shortage continued to take a toll on automobile production. Retail sales of vehicles dipped 10.69% on an annual basis during the month, as per the data released by Federation of Automobile Dealers Associations (FADA). Auto sales during January 2022 saw an even bigger decline of 18.41% when compared to the figures from January 2020 – a regular non-Covid-19 month.

As per FADA numbers, total vehicle sales last month, including passenger vehicles (PV), two-wheelers, three-wheelers, tractors and commercial vehicles, stood at 14,39,747, as opposed to 16,12,130 in January 2021 and 17,64,691 in January 2020. Only commercial vehicles and three-wheelers reported a good month, with sales in these segments rising 20.52% and 29.8%, respectively. All other segments, including the highly competitive two-wheeler market, ended January in red.

Passenger vehicles saw a 10.12% decline during January at 2,58,329 units, against 2,87,424 units in the year-ago period. Two-wheelers sales dipped 13.44% during the month under review, falling to 10,17,785 units from 11,75,832 units in the corresponding month last year. Maruti Suzuki remains the undisputed market leader among passenger vehicles companies, holding 46.82% share, and Hyundai Motor a distant second at 13.6%. On the other hand, Hero MotoCorp holds 30.75% share in the two-wheeler market, followed by Honda at 25.35%.

Meanwhile, commercial vehicle sales increased to 67,763 units from 56,227 units in January 2021, but remained 9.21% below 74,636 units in January 2020. Three-wheeler sales recovered to 40,449 units from 31,162 units in the year-ago period, but couldn’t match the pre-pandemic figure of 63,805 seen during January 2020.

Tractor sales declined 9.86% year-on-year during January 2022 to 55,421 units, from 61,485 units in January 2021.

“Auto retail's weak performance of (-)18.4% compared to January 2020 (a pre-Covid month) continues to show that India is yet to recover from the Covid effect which gripped the world two years ago,” pointed out FADA chief Vinkesh Gulati.

“In spite of good demand, passenger vehicle continues to face the brunt of semiconductor shortage resulting in void of a healthy inventory. Coming to two-wheeler category, the rural distress coupled with price rise and Omicron wave played a villain’s role for this segment,” the FADA president said.

In an internal FADA survey, 55% dealers said they lost over 10% sales due to the Omicron wave, Gulati further mentioned. The survey showed the average inventory for passenger vehicles now ranges from 8-10 days, whereas the same for two-wheelers is 25-30 days.

“With the revival in economy, CV segment continues to show YoY growth especially in HCV category. With increased infrastructure spending by central as well as state governments, overall CV segment remains in momentum,” Gulati said.

Despite the pitfalls in January, auto dealers are optimistic about the near-term outlook. With the third wave of the Covid-19 pandemic subsiding and signs of semiconductor shortage easing, manufacturers are hoping to deliver more units.

The proposal in Union Budget 2022 to develop 25,000 kms of new highways is expected to further push infrastructure spending, resulting in an increase in commercial vehicle sales. Added to this, some traction is also being witnessed in replacement demand after a period of two years, states FADA.

Rural India, known to be a key driver for two-wheeler and entry level passenger vehicles, is set to benefit from the government's plan for ₹2.3 lakh crore direct payment as MSP to farmers. This may work as a booster for two-wheelers, tractors and entry-level PV sales. The upcoming marriage season will also trigger some demand revival for the two-wheeler segment, FADA says.

Around 40% auto dealers are expecting to see some growth in February, while 36% expect vehicle sales to remain flat. Around 25% are expecting to see de-growth in the current month. Sentiments are a mixed bag, with 38% at neutral, 31% at good and the remaining 31% at bad.

FADA has also changed its outlook to ‘neutral’ for the next couple of months from ‘negative-neutral’.