Why the 37% jump in April vehicle sales doesn’t mean industry is out of the woods


by 5paisa Research Team Last Updated: 2022-05-06T13:04:41+05:30

The new fiscal year has started on a positive note for the automobile industry with retail vehicle sales rising across categories in April, though a full recovery is still sometime away.

Sales of two-wheelers rose by more than a third in April while those of three-wheelers nearly doubled. Commercial and passenger vehicle sales were up by a quarter each and tractor sales jumped by one-and-a-half times.

Overall, vehicles sales in April 2022 jumped 37% to 16.28 lakh units over April 2021, according to the Federation of Automobile Dealers Associations.

However, the data has to be taken with a pinch of salt. Here's why—total retail sales are still down 6% over the pre-COVID levels, that is April 2019, when companies sold a total of 17.4 lakh units.

While sales of passenger vehicles and tractors grew in double digits over April 2019, two-wheelers, three-wheelers and commercial vehicles were in the red with sales down 11%, 13% and 0.5%, respectively.

The divergent directions that the sales growth of passenger vehicles and two-wheelers have taken underpin the rural distress in the Indian economy.

Demand for cars and bikes is often used as a bellwether for consumer sentiment while that for commercial vehicles (CVs) such as buses and trucks is a key indicator of business sentiment. Moreover, demand for two-wheelers and tractors is an indicator of rural sentiment.

Many economists have pointed out that rural India is taking much longer to recover from the ravages of COVID-19 and the decline in two-wheeler sales buttresses that theory. The contrarians, however, ask: how come sales of tractors are rising?

FADA feels that the issue could be post-COVID caution in discretionary spending in the rural areas.

Even with robust farm output in the past two years, post-COVID, people in rural areas may prefer accretive spending such as buying tractors, while keeping purse strings tight on consumer goods.

"Two-wheeler sale is a clear sign that Bharat has not been keeping up with India. Apart from rural distress, multiple price hikes coupled with high fuel prices are keeping price sensitive entry-level two-wheeler customers away," FADA President Vinkesh Gulati said.

FADA was also cautious on some other segments, warning of the impact from Russia-Ukraine war, China lockdown, the semiconductor shortage, high metal prices and container shortages.

The steep 40-basis-point hike in interest rates by the Reserve Bank of India will only make the matter worse.

"While passenger vehicle segment may be able to absorb this shock due to long waiting periods, the two-wheeler segment is already reeling due to underperforming rural market, vehicle price hikes and high fuel costs. High interest rates for vehicle loan will be an additional blow for this segment," FADA said.

SOME SOLACE

The forecast of normal monsoon rains is the key factor underpinning some hope of revival in the two-wheeler segment.

"This along with marriage season in coming days will also see a traction in auto retail," FADA said.

There is also a long-waiting period for cars and commercial vehicles providing an order pipeline, at least in the near term.

For now, FADA, which represents over 15,000 automobile dealers having 26,500 dealerships across India, has changed its stance from extremely cautious to cautious in terms of slight recovery.


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