Retail auto weakens in Dec due to lower discounts farmers protest: Report

Farmers protest, lower discounts, especially for passenger vehicles compared to last year coupled with exhaustion of pent up demand, among others, resulted in weak auto retail sales in December, according to a report.

Brokerage Dolat Capital in its auto OEM monthly preview for December also said that although tractor retail sales were soft at the year end, wholesale volumes are expected to continue to be strong due to re-stocking and low base.

In the commercial vehicles space, it said the light commercial and intermediate commercial vehicle (LCV/ICV) segment is gaining momentum driven by demand for last-mile connectivity and rural demand.

It said that retail sales are expected to continue under pressure in the near-term owing to increase in vehicle prices and exhaustion in pent up demand.

However, inventory is lower than normal for PVs and tractors, leaving headroom for higher wholesales, it said, adding thatwhile 2W and PV dispatches are likely to improve by 8 per cent Y-o-Y (for each segment), tractor dispatches could improve by 34 per cent Y-o-Y on a low base while CV is expected to see 10 per cent Y-o-Y decline for December 2020.

"Our channel checks indicate that retail sales were weak across segments dragged by lower discounts (especially for PVs) compared to last year as well as due to farmers' protest in North India," Dolat Capital said.

The December retail sales were also weakon account of customers waiting for refreshed 2021 models and also due to an inauspicious period in mid-December, it said, adding exhaustion of pent up demand, especially in two-wheelers, also was one of the reasons for weak sales.

According to the report, retail sales (across segments) have been adversely affected in Punjab, Haryana and Delhi-NCR due to the ongoing farmers' protests.

However, the demand in Maharashtra is recovering well and almost back to pre-COVID level. The Southern and Western (especially Gujarat) markets are still slow, it said.

Noting that though PV sales remain stable year-on-year, the report said current discounts are much lower than last year due to increase in input costs.

However, the system inventory is at a comfortable level of 20-25 days, it said.

Two-wheeler retail sales were weak due to exhaustion of pent up demand and impact on small businesses resulting in buildup of system inventory to 35-40 days, it said, adding retail sales of entry-level motorcycles (110-125) is weak and OEMs are offering discounts to liquidate their inventory.

Noting that depressed freight rates and underutilization of truck dented M&HCV demand, Dolat capital said in the CV space, LCV/ICV segment is gaining momentum driven by demand for last-mile connectivity and rural demand.

However, low fleet utilisation and poor financial condition of fleet operators continues to be a concern for M&HCVs, it added.

(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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