Sharp surge in Sept domestic auto wholesales hints at recovery: Report

Topics Auto sector

A sharp surge in domestic wholesales during September in segments such as tractors, passenger vehicles and two-wheelers is indicative of a recovery in the automotive sector, CARE Ratings said in a report on Friday.

However, the actual consumer demand which gets reflected in the retail sales data sales by dealers to end-consumers as against wholesales which are by original equipment manufacturers to dealers is yet to gain some pace, it said.

Though the automotive sector has shown good recovery on a sequential basis, achieving full demand recovery is not expected until at least 2021-22, the report said.

Tractors, passenger vehicles and two-wheeler segments are expected to do well in 2020-21, while recovery in commercial vehicles and three-wheelers will be slower, it added.

According to CARE Ratings, passenger vehicle wholesales numbers during September 2020 jumped 26 per cent over the previous month to 2,72,027 units, while two-wheeler wholesales surged 18.6 per cent to 18,49,546 and commercial vehicle grew 29.8 per cent to 55,117 and tructor 67.8 per cent to 1,08,585 units.

Passenger vehicle wholesales in India increased 17 per cent in the second quarter of the current financial year on the back of improved buying sentiment and companies stocking up to cater to enhanced demand in the festive season, according to data released by auto industry body SIAM on Friday.

According to the latest data by the Society of Indian Automobile Manufacturers (SIAM), passenger vehicle sales in the July-September quarter increased to 7,26,232 units from 6,20,620 units in the same period last year.

The two-wheeler sales during the previous quarter rose marginally to 46,90,565 units as compared with 46,82,571 units in the year-ago period.

However, commercial vehicle sales saw a dip of 20.13 per cent to 1,33,524 units in the quarter, compared with 1,67,173 units in July-September 2019.

CARE ratings said the retail sales in September were substantially lower than the wholesales, which means that automotive OEMs are increasing production and pushing inventories to dealers in anticipation of a rise in demand during the upcoming festive season.

According to the ratings agency, as against a 9.8 per cent decline y-o-y in total domestic vehicle wholesales at 23,03,915 units in September, the retail sales dropped 10.24 per cent to 13,44,866 vehicles.

The festive season of this year will be even more critical for the automobile sector, as it has long been affected by low consumer sentiments even before the pandemic started, said the report.

To attract customers, automobile OEMs along with dealers have recently rolled out various offers such as cash discounts, extended warranty, maintenance programme and complementary accessories, among others.

Additionally, vehicle loan interest rates have fallen in recent months, which could help induce vehicle purchases, it said.

According to the Reserve Bank of India, the outstanding vehicle loans as on August 28 stood at Rs 2,19,700 crore, which is an incremental credit growth of Rs 17,100 crore year-on-year.

While all segments have witnessed sequential growth in retail sales in September, a comparison on a y-o-y basis shows that segments like commercial vehilces (CVs), two- and three-wheelers are still witnessing high double-digit decline, it said.

Currently, inventory for 2-wheelers (45-50 days) and PVs (35-40 days) are at the highest levels, according to FADA. Therefore, if the festive season does not lead to a rise in consumer demand, it may seriously dampen the financial health of automotive dealers, who are already surviving on thin margins, CARE Ratings said.

The anticipation of a good festive season led to a sudden surge in automobile wholesales in September, while the retail sales are yet to gain pace, according to the report.

With high hopes pinned on the upcoming festive season, in case it turns out to be a dampener, the automobile dealers will face serious challenges in clearing inventory in the fourth quarter of 2020-21, and this could wipe out all the gains made in the first half of 2020-21, the report said.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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