Supply-demand mismatch to hit festive sales: FADA

The Indian automotive retail industry is facing a new challenge: inability to cater to demand, just when market recovery was imminent. In August 2021,  overall auto retail sales totalled 1,384,711 units (31% YoY), compared to 1,556,777 units in July.

According to Vinkesh Gulati, president, FADA, “Auto dealers are facing the most challenging phase of their business career as the Covid-19 after-effect continues to play spoilsport. While until last year, when demand was a challenge, supply is becoming a bigger problem currently due to shortage of semi-conductors, even though there is high demand for passenger vehicles. Every dealer by now starts planning for a bigger offtake in anticipation of a bumper festive but due to supply issues, inventory levels are at their lowest levels during this financial year. The two-wheeler market is highly price sensitive."

"With multiple price hikes, increased fuel cost coupled with educational institutions remaining closed, the impact could be felt on the overall segment. Customers continued to fight a financial battle due to Covid-related health issues and hence remained away from dealerships resulting in low enquiry and lower sales. This has its impact on the entry level segment, which continues to face the biggest brunt," said Gulati.

He added, "The commercial vehicle segment continues to witness some recovery coming back majorly due to low base of last year. While SCVs had already shown good recovery due to intra-city goods movement, M&HCVs are picking up pace only in specific geographies where the government is rolling out infrastructure projects. Acquisition cost post BS-VI implementation along with financers keeping away from the segment and high fuel cost continues to restrict recovery in CV demand,” added Gulati.

The FADA chief expects the near-term outlook to remain a mixed bag with passenger vehicles witnessing demand-supply mismatch and two-wheeler facing a demand crunch.

He says that with OEMs drastically cutting down production due to unavailability of semi-conductors and ABS chips, coupled with shortage of containers, high metal prices, “customers for the first time may not get a vehicle of their choice and lucrative schemes during this festive season.”  In addition, the “ultra-frequent price increase” is also keeping entry level buyers at bay.

Gulati says that customers especially at the bottom of the pyramid are shifting their priority from saving instead of spending, which is expected to keep demand for two-wheelers a concern. Though, with educational institutions slowly opening up, a ray of hope can be seen for an improved demand in two-wheeler category in coming months.