February , 2022
Automakers hope for a better drive in 2022
17:04 pm

Tushar K. Mahanti

The Indian automotive industry has entered into 2022 with a lot of hopes and positive mindset - leaving behind the agony of the last two years. Backed by a buoyant demand in the passenger vehicle segment despite continuing rises in commodity prices, automobile makers are upbeat to embrace new technologies, especially in the electric mobility space which is expected to witness a slew of launches in both four and two-wheeler categories in the coming year.

The passenger vehicle sales recovered after the second wave of the pandemic due to an increased consumer preference for personal mobility – rising by 26% to reach 1.89 million units in the first eight months of 2021-22. Automobile sales during this period would have been even higher but for the shortages of semi-conductors that restricted the production across automakers. Another thing which too probably affected the sales was the rise in vehicle prices. Grappling with high input costs, many of the automakers raised prices of their vehicles to keep their balance sheets in black.

According to industry estimates, domestic sales of passenger vehicles was more than three million for the third time in a calendar year, growing by about 27% to 3.08 million units in 2021. Sales were, however, lower by 9% when compared with the peak of 3.39 million units in 2018.

Commercial vehicle sales have risen in the first half of the fiscal year, albeit on a low base, due to demand from the e-commerce sector and increased spending on infrastructure projects by the central and state governments.

The revival of the auto sector’s performance is vital to India’s economic recovery. The sector contributes about half of the country’s industrial income and about 7.5% of the overall GDP. In 2020, India was the fifth-largest auto market, with 3.49 million units sold in the passenger and commercial vehicles categories. It was the seventh-largest manufacturer of commercial vehicles in 2019.

The two wheelers segment dominates the market in terms of volume owing to a growing middle class and a young population. Moreover, the growing interest of the companies in exploring the rural markets further aided the growth of the sector. India is also a prominent auto exporter and has strong export growth expectations for the near future.

The automobile industry probably faced the toughest phases in its history recently. After a robust performance in 2018-19, it started declining. And if BS-VI regulations caused a temporary bottleneck, the industry expected a growth rebound in April 2020 when it encountered a rude shock in end March 2020 following the lockdown declared to control the spread of Covid-19. Finally, when things were starting to look up for the auto sector by the third quarter of FY21, the second wave hit India harder in February - May 2021. This year, when the industry was still warming up to the new PLI incentives announced by the government in the last month of 2021, there has been a sudden onslaught of the third wave of Covid-19.

However, even if the Omicron variant of Covid-19 is still a concern for the industry, it hopes that the learning from the past two years will help automakers to carry out business, having adopted digitisation on a large scale.

This is reflected in the growing production and rising stocks at the delivery points. Despite severe production constraints and a long delivery backlog – estimated at about 7 lakh units – car companies sent 30.82 lakh units to dealerships in calendar year 2021 as against 24.33 lakh units in 2020.

Passenger vehicles sales had crossed the 30-lakh mark for the first time in 2017 where total sales stood at 32.3 lakh units. In 2018, the industry had closed at 33.95 lakh units, before slipping in 2019 to 29.62 lakh units.

For Maruti Suzuki, the country’s largest carmaker which was also impacted severely by the semiconductor crunch, sales stood at 13.65 lakh units in 2021, against 12.14 lakh units in 2020. However, this was far short of the 17.31 lakh units it had sold in 2018. Maruti’s rival Hyundai, however, reported a 19% growth in its 2021 with domestic numbers at five lakh units against 4.2 lakh units in 2020. The company has also been hit by the semiconductor shortage with the delivery backlog of vehicles such as Creta and Venue SUVs at over 1 lakh units.

The automotive industry was passing through a difficult phase even before the Covid-19 pandemic struck unprecedented blows. And while almost every major industry in almost every part of the world took a severe beating, the pain may have been felt more by the Indian automotive industry, in relative terms of course.

The question is: Is the worst over for the Indian automobile industry? A number of studies have shown that the consumer spending sentiment is reviving and that with more and more people returning to offices, players in the business of mobility are likely to benefit. If so, the rising mobility will see an increase in the demand for automobile which in turn, will help the industry to tide over its distress.

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