May , 2021
Second Covid wave puts brake on auto sector’s revival bid
21:30 pm

Tushar K. Mahanti


Just when the dreadful memory of 2020 was weakening with the new cases easing out and the vaccination drive picking pace, the second wave of Covid-19 came roaring back with a vengeance. India is now adding more than three lakh new cases every day and the fear of last year’s disaster is reigning across the country. Restrictions on movement and in work places are being imposed from Delhi to Chennai to Mumbai and businesses are turning nervous.

Despite being battered badly by the national lockdown last year and continuing lockdowns in many areas this year, many key sectors had bounced back and were struggling to cope with the pent-up demand that had been unleashed. The second wave of the coronavirous pandemic, however, is threatening to bring that recovery bid to a grinding halt.


A six-week long lockdown last year meant closed factories, zero production and zero sales, something the nation had never experienced before. However, though the unlocking process that followed was gradual, the recovery in sales was quick and unexpected. Indian automobile sector is a case in point which made an unprecedented recovery towards the end of last fiscal after witnessing a severe downtrend in lockdown days. 


Already hammered by an unprecedented slowdown before the coronavirus pandemic, the resilience of the Indian automobile industry was tested severely when the nationwide lockdown was announced. Having endured and managed to recover from the disruptions caused by lockdown, the automobile industry, backed by an impressive performance in the fourth quarter of last fiscal, was cautiously looking forward to 2021 with hopes of putting up a better show in the post-Covid-19 world. But the second wave of the coronavirous pandemic has once again put the sector’s recovery bid in doubt.




Auto sector bounced back in post-lockdown period


The Covid-19 pandemic was only the latest blow; Indian automobile industry was going downhill for a while. In 2019-20, passenger vehicles sales dipped 18%, from 33.77 lakh in 2018-19 to 27.74.lakh. Commercial vehicle sales declined 28.7% in 2019-20 from 10.07 lakh in 2018-19 to 7.18 lakh in 2019-20. The future looked grim and Crisil Ratings forecast last June that passenger vehicle sales would decline 22-25% in 2020-21.


But what actually has happened is a different story and probably unexpected by most analysts. Following the easing out of the lockdown restrictions, the auto industry ramped up production; dealers strengthened their marketing network and sold more cars backed by accumulated pent-up demand.




Quarterly auto sales in thousand












Passenger veh










Comm veh










Three wheelers










Two wheelers










Source: SIAM press release April 13, 2021




A look at the last year’s quarterly figures of automobile sales vindicates the resilience and the unprecedented recovery of the sector. For example, the sales of passenger cars that had fallen to just 154 thousands in the April-June 2020 quarter following lockdown increased nearly four-folds to 934 thousands in the fourth quarter. Sales of passenger cars increased six and a half times during this period from just 80 thousand in the quarter ended June 2020 to 514 thousand in the January-March 2021 quarter. Sales of commercial vehicles have increased nearly seven times during the period from 32 thousands in the first quarter of 2020-21 to 210 thousands in the January-March 2021 quarter.


The fourth quarter’s good performance was largely accounted for by a spectacular rise in sales in March 2021. According to the Society of Indian Automobile Manufacturers (SIAM), the total domestic automobile sales increased 76.8% in March 2021 against the same month a year ago. The passenger vehicles sales jumped 115.2% to 291 thousand in March 2021 from 135 thousand units in March 2020.




Monthly sales of passenger vehicles in thousand


























Source: SIAM


Surprisingly, despite the severe impact of coronavirious on the automobile sector, the monthly sales of passenger vehicles in March were the highest in last three years at 291 thousand units in 2021. There was an increase of 78.7% in the total production of the passenger vehicles to 344 thousand units in March 2021 from 193 thousand units in the same month last year. Their total export increased 17.1% to 40,183 units in March 2021 from 34,303 units in March 2020.


The total domestic sales of the two-wheelers grew 72.7% to 1,497 thousand in March 2021 from 867 thousand in the same month a year ago. The total production of the two-wheelers rose 67.9% to 1,950 thousand in March 2021 from 1,161 thousand in the same month last year. Total exports increased 63.1% to 3,56,172 units in March 2021 from 2,18,328 units in March 2020.


Finally reversing the negative trend, domestic sales of the three-wheelers increased 15.7% to 32 thousand in March 2021 from 28 thousand in March 2020. Total production of three-wheelers increased 23.3% to 74 thousand in March 2021 from about 60 thousand in the same month last year. The total export zoomed 53.6% to 39,772 units in March 2021 from 25,899 units in March 2020


Admitted, that even after a spectacular rise in sales over the quarters the total automobile sales for the full year, 2020-21 was lower than that of the previous year. What is still commanding is that despite lockdown and a severe GDP growth deceleration last year, the sector has succeeded in checking the degree of deceleration it was witnessing. For example, while sales of passenger vehicles declined 17.9% in 2019-20 over the previous year, it has declined only 2.3% last year. In actual terms, passenger vehicle sales declined by 63,000 units from 27.77 lakh in 2019-20 to 27.11 lakh units last year.






Domestic automobile sales in thousand


% Change over the prev year






















Passenger veh




















Comm veh




















Three wheelers




















Two wheelers






















Source: SIAM




But if domestic sales have done better last year despite lockdown, exports remain a concern. According to SIAM, passenger vehicle exports declined 38.9% in 2020-21 to 4,04,400 units from 6,62,118 units in 2019-20. Passenger car exports declined 44.3% to 2,64,927 units in 2020-21 against 4,75,801 units in the previous year.


But then India’s passenger vehicle exports have been declining for the last half a decade. The number declined from 7,57,787 units in 2016-17 to 7,48,366 units in 2017-18 and further to 6,76,192 units in 2018-19. The poor export performance last year was, however, caused primarily because of the economic disaster across the world.




Auto sector faces a fate reversal in 2021


The uptrend in sales towards the end of last fiscal gave the automobile sector plenty of reasons for optimism, especially since the pandemic was easing and the economy was limping back to normalcy. The auto industry was already facing financial headwinds before the pandemic, and the impact of Covid-19 had accelerated many of those concerns. The record monthly sales of passenger vehicles in March 2021 was thus, considered by many as the sign of turnaround.


But that was short-lived and automotive companies like those in other industries now fear the unforeseen effects of the second wave of Covid-19.According to a recent report by Fitch Solutions Country Risk & Industry Research, a second wave of the Covid-19 outbreak could stall a recovery in the global automotive sector, even before it started. This is as the re-implementation or the extension of safety measures, such as movement restrictions and business operating restrictions, will see demand for new vehicles falling further.


This would spell disastrous for India’s automobile sector which has yet to come out of the impact of the first wave of Covid-19. According to SIAM, despite some improvement there was a de-growth in sales of all segments of the automobile industry in 2020-21 compared to the previous year. Passenger Vehicle sales declined 2.3%, two-wheelers sales fell 13.2% and that of commercial vehicles 20.8% during the same period.


As state after state imposes lockdown-like restrictions to restrict the spread of the second wave of the coronavirus pandemic, the fear of a slowdown in business and a decline in incomes and spending, with consumer-facing sectors is looming large.




Supply-side constraints


Maharashtra, a major manufacturing hub for several automakers, is reporting the maximum number of positive cases. From night curfews to weekend lockdown, restrictions are being put into place in several parts of the state.


These restrictions are feared to severely impact the production of automobiles in the country. Maharashtra accounts for about a fifth of the total vehicle production in India and is home to manufacturers like Tata Motors, Mahindra & Mahindra, Bajaj Auto, Force Motors, Mercedes Benz and Volkswagen. The state is also a major producer of auto parts and a number of auto-makers source auto parts and ancillaries from the state. The lockdown is estimated to crimp monthly output by 30-40%. The fresh Covid lockdown in Maharashtra has become a worry for the car industry, which fears that the recent boost in demand may not be sustained, especially on the retail front.


Another reason for concern is the shortage of semiconductors. A worldwide shortage of semiconductor chips used in cars and consumer electronics has led to supply chain disruption. Since the demand has gone up in the gadget and auto industries and huge inventories are not always maintained, it has led to this shortage. The imposition of lockdown-like restriction now threatens to intensify the problem of semiconductor shortage as procuring them and bringing them from abroad has become difficult.




Second wave of pandemic may cut auto demand


While several automobile manufacturers are still facing supply constraints, which delay the delivery of vehicles, there is concern over near term demand due to rising new cases across the country.


The fiery spell of the second wave of the pandemic is feared to affect the consumer sentiment causing discretionary purchases like cars to postpone. Even otherwise, the increasing cases might disturb mobility and consequently impact the demand for vehicles such as cars and two wheelers.


A drastic and sustained rise in new Covid cases across the country have caused localised lockdowns, forcing auto makers and dealers to temporarily shut down their facilities.Not only have new orders fallen, people are even cancelling the bookings made earlier. According to a report (April 22, 2021) by Business Insider, an American business news website, in states like Uttar Pradesh and Madhya Pradesh, dealers are reporting 40%-60% fall in sales compared to the pre-Covid data i.e. year ending March 2019. The report sourced data from Motilal Oswal which surveyed dealers across major states.


The matter is made worse by the decision of most of the auto-makers to raise prices recently. Over the past year the manufacturing cost of vehicles has been impacted adversely due to increase in various input costs, the car companies argue. Hence, it was a necessity to pass on some of the additional cost to customers through a price increase. The latest round of price hike by Maruti, Ford, Toyata and Tata Motors has been done in April 2021.


The blazing speed of the infection in the second wave has already built an uncertainty among the people and if past experience is any indicator, there is every possibility that consumers once again will stop spending in items whose purchase can be deferred. If so, the automobile sector will be among the firsts to suffer from the pandemic once again.


The finance minister Nirmala Sitharaman has recently assured the industry that “despite a raging second wave of infections, 2021 will not be about Covid-19, and the economic revival will continue”. Pointing to the steps taken by the government, she said, “Revival was happening, is happening and will continue to happen.” Sentiments don’t fall so rapidly, FM has added.


These are good words but they were said last year too and with the revival package too. The result is there for everyone to see. A parliamentary panel report submitted to Rajya Sabha last December had found that Covid-19 and subsequent lockdowns caused the automotive industry to suffer ₹2,300 crore loss per day and around 3.45 lakh jobs were lost. The automobile industry fears that if the second wave of the pandemic is not controlled, it will rattle more than just the nuts and bolts of the industry this time.

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