Auto dealers fear huge losses with BS-IV inventory stuck in Covid-19 jam

CARE Ratings said that while the industry players were looking for a 3-month extension, i.e., till June 30, the 10 day extension post the lockdown by the Supreme court is not expected to do the industry any good.
The community of auto dealers has said it would be losing thousands of crores as it is stuck with unsold BS-IV stocks due to the Covid 19 crisis. Dealers are also unable to access the portal for vehicle Many expecting a bumpy ride for the auto sector till the second half of the year.

The Federation of Automobile Dealers’ Association (FADA) said that VahanPortal, used for registering new vehicles, has been disabled across the country even though its staff is working from home. If the portal isn't up and running soon, dealers will face thousands of crores of loss as they will not be able liquidate BS-IV stocks.

The Supreme Court on March 27, provided an extension of 10 days for the phasing out of BS IV vehicles at the end of the lockdown period, given the unusual conditions prevailing in the country. This means that dealers can sell their BS-IV inventories till April 24.

CARE Ratings said that while the industry players were looking for a 3-month extension, i.e., till June 30, the 10 day extension post the lockdown by the Supreme court is not expected to do the industry any good. Buying sentiment after the lockdown is lifted is likely to be low and consumer will be cautious in spending particularly on luxury/big-ticket items.

"It is also to be noted here, that even if the pandemic is curtailed, consumer sentiment is likely to be unfavourable and demand is expected to remain muted during H1FY21," said a CARE Ratings report on industry-wide impact of Covid-19.

With the spread of the virus and at request of SIAM (Society of Indian Automobile Manufacturers) and ACMA (Auto Component Manufacturers Association of India), most of the OEMs and auto component players have initiated work from home for its non-manufacturing work staff and have announced temporary shutdown of manufacturing units and put local productions on hold. Also, the two main auto clusters in India, Pune and Gurgaon-Dharuhera have already been completely shut.

FADA said that the industry is currently sitting on an inventory 15,000 passenger cars, 12,000 commercial vehicles and 700,000 two-wheelers firstlyled by the overall slowdown in the economy, followed by the cautious approach of consumers due to Covid-19.

Currently, the two wheeler industry is left with BS IV inventory worth Rs 4,600 crore, while dealers are left with an approximate inventory of 835,000 units. Additionally, with the production in the country being halted due to the 21-day lockdown, the Society of Indian Automobile Manufacturers (SIAM) has already estimated a minimum loss of around Rs 2300 crore per day.

During FY20 (April –February), sales witnessed a decline of about 12.7% y-o-y on account of weak demand for commercial vehicles, two &three wheelers as well as passenger vehicles that registered a double-digit decline of 22.9%, 12.5% and 11.4% y-o-y respectively according to the latest data of the industry body SIAM.

Continued impact of increased cost of ownership in passenger vehicles and two wheeler segments due to new safety norms and higher insurance costs, increased axle norms and high base of previous year in case of commercial vehicles led to the overall decline of automobiles during FY20 (April – February). Also, going forward, with implementation of BS VI norms from April 2020, the cost of ownership is further expected to increase by about 12-15%, added CARE Ratings.



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