- Economy is opening up slowly so is the pick up in automobile sales
- The tractors segment, however, continues to do well
Auto companies had come under tremendous pressure due to the COVID-19 outbreak as the production got halted and dealerships had to be closed down. The lockdown, however, was eased in May to kickstart the economy and auto companies started opening up manufacturing facilities slowly and a few of the dealerships also started. But, people continue to be cautious to step out to spend on discretionary items such as automobiles.
Segment-wise commercial vehicle manufacturers posted a decline in the range of 70 percent to 90 percent, the passenger car segment declined more than 80 percent and the two-wheeler segment declined in the range of 60-83 percent. Exports have also witnessed a decline in the range of 50-80 percent.
What continues to do well in terms of monthly numbers is the tractor segment. Escorts posted a meagre decline of 0.5 percent on year-on-year (YoY) basis and M&M witnessed a YoY decline of 1.5 percent. The numbers came at 6,454 and 24,341 units in the month of May 2020, respectively.Outlook
The road ahead would continue to be challenging for auto companies as they need to maintain social distancing both in factories and dealerships.
We believe that the demand for the commercial vehicle (CV) segment would pick up slowly as it is directly correlated with the economy.
One of the most important changes we will see in a post-COVID-19 world is a shift towards personal transport as people may continue to be wary of public transport. Two wheelers and passenger vehicles are likely to see a significant pick-up in demand. Here too, affordability matters, as the threat of job losses looms large in several sectors.
BS-VI implementation is also a challenge for auto majors as the cost of ownership is expected to rise which may thwart demand recovery.
Lastly, higher reservoir levels, adequate soil moisture condition, a good Rabi crop and normal monsoons augur well for tractor demand in the next few months.For more research articles, visit our Moneycontrol Research page.