Semiconductor shortage, surge in Covid cases, finance availability impact auto retail sales: FADA

The Federation of Automobile Dealers Associations (FADA) has released the monthly vehicle registration data for February 2021, which saw overall sales of 1,499,036 units (Feb 2020: 1,731,628 units) a decline of 13.43 percent YoY. Interestingly, the Tractor segment continues to report robust growth, while the passenger vehicle sales were in the green albeit a low-year ago base. 

Commenting on the auto retail sales number, Vinkesh Gultai, president, FADA said, “Auto registrations continued to fall in double digits by -13.43% YoY in the month of February. While tractors maintained their outperformance compared to the broader market, passenger vehicles witnessed double digit growth on low base of last year as India started transitioning from BS-IV to BS-VI emission norms. This coupled with the global semiconductor outrage kept waiting period of PVs as high as 8 months. FADA Survey showed that 50% PV dealers have lost more than 20% sales due to non-availability of vehicles. Two-wheelers continued to see sluggish demand as the new wave of Covid in certain states kept customers away.”

He mentioned that enquiry levels have also narrowed as many educational institutions were still reluctant to open. The recent turmoil and the rising fuel prices have also put a dampener in consumer sentiments, which in-turn has pressed “brake on sale of entry level price sensitive category.”

He further mentioned that the overall CV segment continued to falter as availability of finance, negligible sales of passenger buses due to closure of educational institutes and supply side constraints have kept the registrations in deep red.

“LCV’s which saw good pent-up demand during last few months post unlocking have now started to fall flat. Tippers and HCV’s are in-turn showing initial signs of revival as government’s infrastructure push has started creating its demand,” added Gulati.

Shortage of semi-conductor can impact demand momentum
India’s economy resurfaced to growth territory in the third quarter of FY2021, reporting a growth of 0.4% rise in the GDP. The farm sector continued to remain resilient, clocking a 3.9% growth in Gross Value Added (GVA) to the economy, after recording 3.3% and 3% rise in the first two quarters. This has enabled a strong growth in sales of tractor which is expected continue to outperform overall registrations in near term.

FADA says fuel consumption which had almost recovered from the lows of pandemic is once again witnessing headwinds due to historic price hikes. This will have a negative impact on 2W and CV sales. Consumer spending, which is the driving force behind India’s economy and accounting for 60 percent of the GDP, fell 2.4 percent showing signs of sluggishness despite the quarter being in the festive season, which reflects that consumers are still uncertain and worried about their income and cautious about spending. India’s growth engine will only see full recovery depending on the pace of the world’s largest vaccination programme. A rapid increase in new covid cases will thus reduce the pace of recovery and hence impact overall auto demand.

FADA says while it is thankful to the finance minister for announcing the Voluntary Scrappage Policy, it continues to await the fine prints of the same. It has also urged the government to hold diplomatic discussions with countries manufacturing semi-conductors (Taiwan and other similar countries) so that the momentum which was built thus far in auto sales is not lost and the industry continues to fuel the recovery process. Overall, FADA continues to remain guarded in its optimism for vehicle registrations in March.