Automobile Woes To Continue Post Lockdown

The Auto industry is currently plagued by various negative issues such as lower retail sales, culminating into production cuts that has reduced the retail demand, while COVID-19 crisis further have spoiled the game completely altogether. The Supreme Court’s order on March 27, 2020 to allow automobile dealers, except in the National Capital Region, to sell 10 per cent of unsold Bharat Stage IV (BS-IV) compliant inventory within 10 days after the nation-wide lockdown ends on 14 April 2020 will provide a little respite to an already struggling automobile dealership. 

Currently the most important issue is the transition from BS-IV to BS-VI in for the various sub segments of automobile sector on April 1, 2020 and as per the previous court order, vehicles compliant with BS-IV emission norms could not be sold or registered beyond March 31, 2020. India Ratings and Research (Ind-Ra) believes that liquidating the unsold BS-IV stock within 10 days amid a desperately low buyer sentiment due to the COVID-19 pandemic would lead to heavy discounts and still might not be adequate to alleviate the demand woes of auto dealers and could impact their profitability. 

“If the shutdown remains for a prolonged period, it could lead to weaker consumer sentiments amid lower income across various sections on account of a decreased industrial output, reduced transportation and an overall challenging economic environment. Hence, there is no likelihood that the sale of BS-VI vehicles would pick up any time soon,” Santosh Pudasaini, Analyst, India Ratings & Research.

That said, in terms of sales volume growth over April 2019- February 2020, the overall domestic automobile sales volume with passenger vehicles (PVs), commercial vehicles (CVs) and two-wheelers (2Ws) sales volume declined by 15 per cent, 22 per cent and 16 per cent year-on-year (y-o-y), respectively. “Ind-Ra believes that the COVID-19 spread and the resultant lockdown, crippling most economic and commercial activities, will negatively impact the demand for automobiles. Even after the lockdown ends on April 14, 2020, consumers would be wary to come out for a discretionary purchase and hence a 10-day timeline might not be sufficient to sell the inventory,” says Pudasaini.