The auto sector has been badly hit by the COVID 19 pandemic and the resultant lockdown. Not only did people put off auto purchases to limit physical exposure; the fact that so many people lost their jobs or started earning less also deterred purchases. With things now limping back to normal, many would have revisited their plans to buy a new car or two-wheeler. Is this a good idea?
According to a Care Ratings report, it is predicted that demand in the auto sector will continue to remain low in times to come. The tractor segment has been the best performing segment because the agriculture segment has shown itself to be the most resilient in lockdown times. However other auto segments have a much grimmer aspect. Wholesales of two-wheelers may drop by 18%, commercial vehicles may drop by 30% and three-wheelers may drop by as much as 73% during this financial year.
Add to this the fact that auto manufacturers currently battle a rise in input and commodity prices. It is therefore expected that manufacturers will raise auto prices to combat higher costs and lower demand. Several auto manufacturing companies have announced prices increases from January 2021 onwards. This is meant to offset the increase in prices of precious metals, aluminium, steel, plastic and other raw material costs.
India’s largest auto manufacturer Maruti Suzuki made an announcement in December 2020 that it would be raising prices to counter rising input costs. The extra costs incurred would be passed on to the customer, it was announced. Kia announced that prices of the Sonet and Seltos would rise. MG SUV prices are expected to go up by 3% while BMW Mini could be costlier by 4%. Hyundai, Mahindra, Renault and Honda have also made similar announcements of price rises. Two-wheeler manufacturers such as Hero Motocorp have also announced an increase in prices across models.
There had been a modest increase in buying during the festival season and soon thereafter. Since so many manufacturers announced last December that prices would be rising from January 2021, many rushed to make purchases before the price rose. Good crops also contributed to the positive sales graph since more farmers were in a position to buy farm mechanisation and transport vehicles. In the event, December was a good month for the auto sector. However, manufacturers and deals are not confident that this will continue into the New Year. Experts are not optimistic that the auto sector will be able to extricate itself from the slump that it currently finds itself in.
The Indian Federation of Automobile Dealers Associations (FADA) has said that the uptick seen in sales during the last quarter is unlikely to continue during the last quarter of this fiscal year. The auto industry has now pinned its hopes on the upcoming Budget. Government approval for ₹12,000 crore infrastructure projects is one of the much-anticipated announcements that will help to spur demand. A successful vaccine rollout will also help increase sales in the auto sector it is expected.
Auto manufacturers and dealers are hoping for announcements related to electric vehicles, possible changes in scrappage policies in the upcoming budget. As of now, it would seem that a wait and watch approach would be best for those looking to make vehicle purchases – at least until after the Budget announcement on 1st February 2021.
Do you have something interesting you would like to share? Write to us at [email protected]
