The passenger vehicle segment recorded 126 percent jump in sales in March. Sales of the two-wheeler industry rose 85 percent during the same month. These numbers, which if compared to March 2020 look high because of the low-base effect, are still higher than the numbers in February and January. In today’s auto weekly wrap, we find out the reasons behind this sustained rise in demand. But first here is a brief of all the important news development that happened during the week.
Auto makers hike prices again
Raw material cost increases are forcing automakers to go for yet another price hike in an effort to avoid a further squeeze on profit margins.
The hikes, effective April 1, would be for the second time in four months.
Honda launches CB650R, CBR650R
Honda seems pretty intent on expanding its BigWing offerings and it doesn’t look like the company is wasting any time with it. The latest entrants now are the CB650R and the CBR650R.
Both bikes will be coming to India through the CKD (completely knocked down) and are priced at Rs 8.67 lakh for the CB650R and Rs 8.88 lakh for the CBR650R.
M&M board gives nod to Mahindra Electric consolidation
The Board of Directors of Mahindra and Mahindra Limited has granted an in-principle approval for the consolidation of Mahindra Electric Mobility into Mahindra and Mahindra.
The consolidation of the step-down subsidiary will aim at categorising EV operations into two distinct verticals – Last Mile Mobility and Electric Vehicle Tech Centre.
Two-wheeler sales in high gear
Six of the eight two-wheeler makers who control more than 90 percent of the two-wheeler industry clocked sales of 1,475,937 in March, a growth of 85 percent over March of last year of 798,085.
Hero MotoCorp, India’s largest manufacturer of two-wheelers, recorded 72 percent rise in domestic sales in March at 576,957 units. Honda Motorcycle and Scooter India (HMSI), the country’s second largest two-wheeler maker, clocked 395,037 units in sales during March, an increase of 78 percent
Car sales hit new high in March
11 of the 14 carmakers who control 99 percent of India's domestic car market recorded a 126 percent jump in March sales to 315,946 units compared to 139,761 in March, 2020 when the lockdown had begun to hit production.
Maruti Suzuki, India’s largest car maker, recorded a 92 percent increase in domestic sales during March to 146,203 units as against 76,240. Hyundai Motor India, the country’s second biggest carmaker, clocked a 100 percent increase in domestic sales during March to 52,600 units as against 26,300 units.
What is fuelling vehicle demand?
The answer to the above question is what has got even the automakers scratching their heads. Its been more than five months since the festive cheer ended but there is no let-up in demand for cars, SUVs and two-wheelers. In fact, so fiercely sustained is the demand that automakers continue to struggle to match up with supplies.
The usual 40 days of the festive period which occurs between October to November, generates roughly 30 percent of the year’s automotive sales. The sales expectation during this year’s festive period was pretty high given that the previous months were lost in lockdown due to the pandemic. Demand was expected to taper off starting December after sales due to the ‘pent-up demand’ was to get exhausted. This even led a section of the industry to give calls for a cut in GST as a temporary measure to boost demand.
But the cut was never needed. In fact, automakers have carried out no less than three price hikes since November which has raised vehicle prices by a minimum of 3 percent. Market experts feel that the automotive segment (barring commercial vehicles and three-wheelers) has entered a ‘seller’s market’ where automakers are able to dictate pricing terms without fear of impacting demand.
So what has led to this boom in demand without any fiscal support from the government, rising fuel prices and markedly low discounts offered by the dealers?
The reasons behind this upward trajectory of demand are one too many. One of the primary reasons behind the rise is the launch of new models. There have been no less than a dozen odd launches in the passenger vehicle space in the last 7-8 months. A majority of these new model launches have been sports utility vehicles, which has become the choice of the masses.
Decade low interest rates, mouth watering finance schemes, urge to have a second car in the family, tendency to avoid public transport due to the pandemic are some of the other reasons. Auto demand from the rural pockets have been robust because of good farm income. This is visible is record sales of tractors which at it best level ever.
“People have suddenly become very aware of what the situation is. Nobody predicted the pandemic or the lockdown. Now that they have a chance, buyers are not holding back their aspirations of owing a new car given the uncertainty around the pandemic. They want to live in the present as pandemic showed to us that the future can be highly uncertain”, said a senior sales head of Volkswagen India.
Most automakers are running their plants to full capacity as a result. Maruti Suzuki, India’s largest carmaker, has hit 100 percent capacity utilisation with a constant production of around 165,000 a month (1.98 million yearly). The company cannot produce more than 2 million units in a year. On April Suzuki Motor Company inaugurate a third plant in Gujarat which has the capacity to make 250,000 units a year.
Demand for products made by Tata Motors, Hyundai, Kia, Renault and Nissan have gone through the roof. Waiting period for models like the Tata Nexon, Hyundai i20, Kia Sonet, Hyundai Creta, Renault Kiger and Nissan Magnite range from 2-6 months.
“Its not just us but our parts supplier too who are under pressure to deliver and are thus working round the clock to meet demand. Nobody imagined such a strong and swift turnaround”, said a managing director of a top Indian carmaker.
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