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Last Updated : Jul 11, 2020 06:03 PM IST | Source: Moneycontrol.com

This week in Auto: Has real demand picked up?

Here is a detailed look at what made headlines in the auto space this week.

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The COVID-19 pandemic not only disrupted launch schedules of new cars but also the production plans of manufacturers. Since then, through trial-and-error methods, carmakers are looking to get back on their feet. From zero sales in April, the industry made a noteworthy jump in sales in June. But how much of the gain comes from actual retail demand? In today’s auto wrap of the week, we take a look at this aspect. But first here is a detailed look at what made headlines in the auto space this week.

Mercedes-Benz sales in H1 halve

German luxury carmaker Mercedes-Benz on Friday reported a 55 percent decline in sales in the first half of the year at 2,948 units in India amid COVID-19 related challenges.


The company had sold 6,561 units in the January-June period last year. The company said it witnessed positive momentum in June 2020 sales, which showed first signs of a gradual recovery buoyed by a rejuvenated SUV portfolio that accounted for 57 percent of total sales in the month.

Ampere acquires Noida-based company

Greaves Cotton-owned electric two-wheeler maker Ampere Vehicles has acquired 74 percent stake in Noida-based electric three-wheeler maker Bestway Agencies for Rs 7 crore.

The acquisition price for the balance 26 percent, expected to be done in April 2021, will be determined as per the fair value of the equity shares as on March 31, 2021, subject to completion of various conditions agreed between parties, Ampere added.

SC recalls order on BS-IV sale

The Supreme Court has recalled its March 27 order that allowed the sale of BS-IV vehicles after the lockdown. The apex court has slammed the Federation of Automobile Dealers’ Association of India (FADA) for committing 'fraud'.

The court has directed FADA to furnish the data of BS4 sales and directed the government to corroborate the sales data with the information available on the VAHAN portal. The SC noted that over 17.000 vehicles sold were not registered with the VAHAN portal.

Capex to hit multi-year low in FY21

Investments lined up by a dozen automotive companies for 2020-21 sums up to just Rs 11,000 crore, a multi-year low, following corrective measures adopted to tackle the disruption caused by the coronavirus pandemic.

These vehicle-making companies and their auto parts-producing partners have decided to push back launches, delay the start of new factories, deferred development of new technologies and come down heavily on fixed and variable costs to cut down on capital expenditure (capex).

Has real demand picked up?

Last week most vehicle makers reported June sales that were more than double compared to sales in May. While they were still less than half compared to their usual monthly level it nevertheless is a silver lining coming on the back of the industry recording zero sales in April, a first ever.

These were dispatches made to the dealers who were anyway working with the lowest inventory ever. Many of these were related to bookings made by customers that were never serviced due to lack of supplies from the manufacturer following the 40 day lockdown.

So questions have been raised on whether this trend can be sustainable since pent-up demand will eventually get exhausted and the market will have to then survive on the fundamental demand. Though manufacturers themselves are not able to clarify if the sales trend will sustain itself given the widespread disruption by COVID-19, some initial trends in retail off-take may provide a better understanding.

Maruti Suzuki, India’s largest carmaker, for instance, clocked wholesales (sales to dealers) of 51,274 units in June. However, as per sources, its retails (sales to customers by dealers) stood at a little under 100,000 units during the same month.

While Tata Motors, the maker of Tiago and Nexon, did not disclose sales numbers for June, the Mumbai-based company claimed that its retail volumes was 27 percent higher than wholesales during the April-June quarter. The company had reported wholesales sales of 14,571 units during the June quarter.

The manufacturer of Innova and Fortuner, Toyota Kirloskar clocked 3,866 units in wholesales in June. But as per the company, its retail volumes were nearly double than that for the same month.

New launches (including those just before the lockdown), pent-up demand, a variety of finance schemes and the need for personal mobility are the factors determining retail demand at the moment.

A higher-than-wholesale volume in the retail segment augurs well for the industry, indicating that there is no dumping of stocks on the dealers by the manufacturers but a natural demand pull from the buyers.

This will make manufacturers push production to greater levels in July from zero in April. On an average, manufacturers are operating between 25 percent and 50 percent of their total installed capacity presently.

All eyes are now on the July retail numbers. If they beat the June numbers then it would be easier to assume that the elusive natural demand has started to kick in.
First Published on Jul 11, 2020 06:03 pm