Festive sales will initiate the growth momentum and build consumer confidence for the auto sector says Vinkesh Gulati, President Federation of Automobile Dealers Associations (FADA). The auto sector is optimistic of sales growth and a better picture will emerge at the end of this festive season. He opines that a reduction in GST rate and incentive-based scrapped policy will boost consumer confidence and drive demand.
In an exclusive interview with Davis Index, Gulati shares insights on the auto sales and the challenges faced by the auto sector.
Where do you see auto sales by the end of the year?
The last few months have been quite encouraging, as there has been significant growth in the level of enquiries resulting in pent-up demand in sales. With the start of festival season and the government’s continued effort to open up India, retail sales are expected to grow further. Customers who were sitting on the fence or waiting for the festive season have finally concluded their purchases during the ongoing festivals.
Entry-level Passenger Vehicles were in high demand as personal mobility is being preferred during the pandemic. This segment has shown no signs of demand contraction. Demand from the rural market has given a substantial boost to retail sales. Going forward with a better monsoon and the government’s priority spending towards rural development and agriculture, sales in rural India especially in segments such as Tractor, Small CV’s and entry-level Passenger Vehicles, is expected to improve. Apart from the rural market, urban centres for the first time in August showed initial signs of demand pullback. Overall demand is still not back to pre-pandemic levels as banks and NBFCs continue to have a cautious approach towards funding. Commercial vehicles, especially M&HCV category is still suffering.
The wholesale front might witness growth, considering every dealer is preparing for the festive season and working on their respective inventory build-up.
Is auto sales rising due to pent-up demand or is it fresh market demand? What steps should be taken to revive demand in India?
Going forward, to convert the pent-up demand into a more sustainable demand the entire Automobile ecosystem must work in synergy, wherein making all necessary efforts to regain the customer confidence. FADA once again requests the Government to announce demand boosting stimulus and awaits the announcement of a reduction in GST for 2-wheelers, and which should be further extended to other segments. We also await the much-required incentive-based scrappage policy. Both these measures will act as demand drivers for 2-wheelers and especially Medium & Heavy Commercial Vehicles sales in India thus once again making auto Industry, a lead indicator for India’s growth.
What kind of headwinds is the Indian auto sector facing in the post-COVID-19 era? What could be done to overcome these challenges? Are there any potential reasons to be optimistic?
As far as industry and demand revival is concerned, we are quite optimistic that the festive sales will initiate the growth momentum and build consumer confidence. We will get a better picture once we are at the end of this festive season. On a year-on-year basis, auto sector recovery is far from normal. Current market conditions still do not indicate an improvement in actual demand or buyers sentiments at a pan-India level.
There has been a shift in favour of personal mobility as people are avoiding public transport due to the pandemic. This is one of the key factors driving the sales momentum, especially in the used cars, two-wheelers and budget cars segment. However, in the long run, the market would have to build a positive sentiment as car buying is a discretionary decision, which purely depends upon sentiment, if the sentiments are positive, customer reclaims the confidence to buy. The need of the hour is for the government in association with the automobile ecosystem to work towards bringing back consumer confidence. To regain the momentum and the customer sentiments government need to strengthen the automobile industry, firming ever pillar of the industry wherein the dealer fraternity is an important support to the system and come out with a demand stimulus package.
Could you please elaborate on the auto sales statistics for August?
Vehicle registrations for August showed improvement due to ongoing festivities when compared to July, but registrations are down by 26.81pc from the prior year. Two-wheeler registration degrew by -28.71pc from the prior year, three-wheeler down by 69.51pc, CV down by 57.39pc, while PV dropped by 7.12pc. Tractor registrations continued their uptrend with 27.80pc growth from the prior year.
What are your long term and short term forecast for sales?
We expect FY21 to be 65-70pc of FY20 sales. The base year should be treated as FY19 as we have seen de-growth of 18pc last year and to achieve the figures of FY19, we will take another 3 to 4 years.
Federation of Automobile Dealers Associations (FADA), is the apex national body of automobile retail industry in India and is engaged in the sale, service and spares of 2/3 Wheelers, Passenger Cars, UVs, Commercial Vehicles and Tractors, representing over 15,000 automobile dealers with over 26,500 dealerships across India.