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Auto wholesale sales data for November poured cold water on expectations of a strong rebound in performance after the second wave of COVID-19. On the contrary, the sector continues to battle challenges on demand and supply fronts.
What’s most disappointing is that wholesale sales of cars and two-wheelers fell over a year ago and also compared to October. While management commentary blames the semiconductor shortage as one of the key reasons, concerns on a slowdown in demand are coming to haunt the industry.
Passenger vehicles and two-wheelers are facing a dent in demand at the entry- and mid-segment levels -- a feature that was visible in retail sales through the festive season. In fact, the Federation of Automotive Dealers Association had pointed out that it was the worst retail auto sales registered during a festive season, in a decade.
The weak demand can be attributed to various factors such as rural distress, impact of inflation on the purchasing power of urban customers, vehicle and fuel price hikes and also COVID-led uncertainties that are influencing customers to defer decisions to buy a vehicle. Maruti Suzuki announced today its decision to increase prices in January 2022. If others follow suit, it may affect demand further. However, demand for premium vehicles, particularly the utility vehicle segment, showed a spark; November wholesales of these vehicles improved led by Maruti and Tata Motors.
Even the medium and heavy commercial vehicles (CVs), which showed signs of sales improving in the past two months, dipped in November. Worse, overall CV volumes were lower than even March 2021 levels.
For auto manufacturers, there are challenges galore. Rising logistics costs, semiconductor shortage, and a new worry is the uncertainty over the impact of the Omicron variant of virus. If these were not enough, they are facing an existential question of coping with the shift to electric vehicles. The two-wheeler industry is seeing newcomers pose a challenge to incumbents scaling up volumes. The car industry may not be seeing that sort of disruption yet, but there’s little room for complacence.
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