FADA's caution on car sales as semiconductor supply looks shaky

FADA also stated that, with crude oil price rising beyond the $110 level, the government will not be able to keep petroleum product prices stable for long. (Representative Image)

As Russia and Ukraine are the major suppliers of key components for chips, their conflict could have a negative impact on semiconductor output, said  Federation of Automobile Dealers Associations (FADA) President Vinkesh Gulati, on a day when the auto body has changed its outlook on vehicle retail sales to 'negative' from 'neutral', owing to fears of supply disruption.

"We will surely see the effect of the Russia-Ukraine conflict. Russia supplies palladium for semiconductors. Not a direct supplier to India but it supplies to our suppliers - the OEMs who give us the final product. And, Ukraine is a big hub for gases that are used in semiconductors," said Vinkesh Gulati, speaking with CNBC-TV18.

The FADA president also hinted if the conflict throws automakers into the supply-chain crisis, the restrictions may halt production of cars in the country at least for some time.

"Indian production may get hampered if there is low supply of semiconductors. Shortages will bite car makers," Vinkesh Gulati said.

To a question whether OEMs have already been reeling from a shortage of raw materials, the FADA president said India will definitely feel the impact in 15 to 30 days from now if production activity at factories does not pick up momentum.

"The semiconductor cycle takes around 45 days - from the raw material to the end product delivered to the OEMs. Hopeful of seeing fine vehicle sales numbers for March. But, going further we will see how it impacts us. The manufacture of semiconductors is happening now in Malaysia and at other places. If the raw material from Russia does not reach the production factories, obviously retail will have its impact in India in another 15 to 30 days," said Vinkesh Gulati.

On whether rising input costs of raw material would drive up car prices and the effect of this on the vehicle demand, he said the two-wheeler segment would instantly be under pressure but for car segment to witness any changes in demand, it would be known only after three months.

"Fuel prices going up due to Russia conflict will have its impact on two-wheeler segement which is already witnessing a de-growth. This makes the demand go down. In car segment, I do not see immediate impact but, can't say how the situation is going to be after three months, as the waiting period now is similar to what it was two months ago," said Vinkesh Gulati.

FADA changes its stance on vehicle sales from "neutral" to "negative"

The association earlier in the day said it changed its stance on retail vehicle sales from "neutral" to "negative" due to the present geopolitical tensions.

"Till the time Russia-Ukraine conflict doesn’t come to an end, FADA changes its outlook from ‘neutral’ to ‘negative’," said the industry group.

FADA in its statement said, "Russia is one of the largest producers of rare-earth metals especially palladium, which is an essential metal for semi-conductors. Ukraine is one of the biggest producers and exporters of neon gas, which is used in the manufacturing of semiconductors. Due the ongoing war, we once again fear the shortage in semi-conductors which will create additional supply issues for PVs."

The group also stated that, with crude oil price rising beyond the $110 level, the government will not be able to keep petroleum product prices stable for long.

"With crude breaching $110 mark, the government will not be able to hold prices of petroleum products for long," said FADA.

The automobile dealers' body also stated that after the state election results are out, it expects the oil marketing companies to boost pump prices.

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"Post state election results, oil marketing companies will increase fuel prices by at least Rs 10-15," the industry body stated.

"While this will act as an obstacle for 2-wheeler sales, with educational institutions and offices now fully open and Gudi Padwa round the corner, we may see some increased interest in 2-wheeler as well as the bus segment (which has witnessed a long dry spell of almost 2 years)," FADA also said in its media release.

Decline in vehicle retail sales

The FADA stated on March 4 that total vehicle retail sales for the month of February were down 9.21 percent year-on-year. And, while the retail sales of two-wheeler, passenger vehicles and tractors decreased 10.67 percent, 7.84 percent and 18.87 percent, respectively, three-wheeler and commercial vehicle retail sales increased 16.64 percent and 7.41 percent respectively in February.

Also Read: India Semiconductor Mission: Should India be worried about possible sanctions?