Is auto sales growth for real?

In July this year, homegrown auto major Tata Motors reported a 92% growth in domestic sales to 51,981 units, against 27,024 units a year ago. Its commercial vehicle (CV) sales grew 81% year-on-year (y-o-y), while the passenger vehicle (PV) segment saw 101% growth. Last year, when the auto industry was hit hard by the Covid-induced lockdown, the company’s sales had declined 18% (to 27,024 units), compared with July 2019. Go back just a year prior, and the decline is even steeper — 34% (to 32,938 units), from 50,100 units sold in July 2018.

Notice what’s happening here? Most auto companies that are now seeing a “revival” in growth are actually reporting it on a far lower base of the last two years. Tata Motors is not an exception — in fact it was one of the better-performing ones on the back of its new launches, revamped design and changes in the leadership team.

Take another example. The country’s largest carmaker, Maruti Suzuki, reported domestic sales of 133,732 units in July 2021 — a 37% increase from July 2020, and a 38.61% rise from 96,478 units in July 2019, but a 12.26% decrease from July 2018 when it sold 152,427 units. Since 2018 was the peak year for most auto companies, is the last year a fair metric for the measurement of the industry’s growth?

“It’s not a fair metric for companies to report growth this year based on last year,” says Ashish Modani, vice president, ICRA.

“It will take time for India to reach pre-Covid levels. The industry saw a peak in FY19, but subsequently started going down. Last year Q1 was an exceptionally weak quarter (due to the pandemic). That should not be a benchmark. If they want to compare, they should ideally be compared with Q1 FY20 or FY19,” he adds.

According to Modani, for PVs, the growth will be relatively faster compared to other segments such as CVs and two-wheelers. “While the growth coming on a very low base looks optically very strong, it will be way below the previous peak,” he says.

According to the Federation of Automobile Dealers Associations (FADA), two-wheeler retail sales grew 27.56% in July 2021 to 11,32,611 units, compared with 8,87,937 units a year ago, but the segment witnessed a 19.07% de-growth in July 2021, against July 2019 when 13,99,409 units were sold.

Generally, we do yearon-year comparisons, but because last year was unusual (and severely affected by the pandemic), the basis of calculation should be 2019, which was a normal year. The car segment is already over and above the 2019 figures, but for two-wheelers and CVs, there’s no demand till we see schools starting again, work-from-home ending and fuel rates being regularised,” says Vinkesh Gulati, president, FADA.

In segments such as CVs, FADA reported a 165.94% y-o-y growth in July 2021 to 52,130 units, against the same period last year. However, the industry sold 69,361 units in July 2019, which makes it a fall of 24.84% compared with the pre-pandemic year. “The volume growth is not so strong in segments such as two-wheelers and CVs. They are still way below pre-Covid levels. In PVs, we are expecting the growth to hit the previous peak soon. We are very close to FY19. For two-wheelers, it will take around two years, but for CVs, it might even take around three-four years to recover,” says Modani.

The auto components industry, too, suffered in FY21 as it de-grew 3% to ₹340,733 crore from ₹349,637 crore in FY20, and fell 16.19% from FY19. “The automotive value chain faced significant disruptions in 2020-21. The nationwide lockdown in the wake of the pandemic put the entire supply chain in disarray. The industry took a significant time to stabilise again post the gradual unlocking of the economy. While vehicle sales and production improved quarter-on-quarter from the second quarter of 2020-21 onwards, however the first quarter of 2021-22 was once again confronted with another round of disruption due to Covid 2.0,” says Deepak Jain, president, Automotive Component Manufacturers Association of India (ACMA).

“While this wave was a much severe humanitarian crisis, the lockdowns were regional, which reduced the impact on the economy and production. Now, with the economy progressively returning to normal and vehicular demand picking up, we are cautiously optimistic about the performance of the industry this year.”

According to experts, wholesale numbers are never a good way to gauge whether the end customer is actually buying the products, since dealerships often tend to stock up in anticipation of more sales.

The challenges automakers face, says Jain, have aggravated due to the non-availability of semiconductors, raw material shortage, and high prices of containers affecting the logistics cost.

“We hope the current revival in demand will be a sustained one,” says Jain.

“The Indian automobile industry continues to face headwinds in the form of global semiconductor shortage and steep rise in commodity prices. On one hand, the industry is managing supply chain challenges while ensuring safety of its people, and on the other hand, it is keeping a close eye on the onset of a third wave in India and abroad,” adds Rajesh Menon, director-general, Society of Indian Automobile Manufacturers (SIAM).

With two-wheelers and CVs having 70% share in dealerships, the industry is still in a tricky place with thousands of small dealers reducing their footprint. There is a desperate need of demand generation.

“As of today, the biggest demand booster is new models with better features. That’s one thing which customers get excited about. The secondbest thing are financing schemes where we can push a customer towards buying a vehicle by supporting their rate of interest or giving the option of staggered installment payment,” says Gulati.

“The upcoming festival season will help. Sentiment is very important in this industry. If the customer is happy, he buys more,” adds Gulati.