Coronavirus impact: Auto manufacturers face second-hand challenge

Car manufacturers and dealers will have to brace for fresh challenges from the second-hand market amid the coronavirus (Covid-19) outbreak.
 

The second-hand vehicle segment is expected to capture a larger share of the two wheeler and passenger car markets. This is because consumers are postponing their purchases owing to a dent in their pockets.
 

These are some key findings by PricewaterhouseCoopers (PwC), which made a presentation to members of the Society of Indian Automobile Manufacturers (SIAM) this week to discuss the impact of Covid-19 on the sector.
 

Now, automotive original equipment manufacturers will have to strengthen their pre-owned vehicles business.
 

Also, shared mobility services (like Uber and Ola) will remain subdued in the coming months with consumers preferring to have their personal mode of transport. This will provide a window for passenger cars to show strong growth post recovery.
 

PwC predicted that in a realistic scenario, the auto industry will see a delayed recovery sometime in the fourth quarter of FY21. But its pessimistic projection is for Q1 FY22. It has also predicted pay cuts, temporary job losses and poor consumer sentiment.

PwC has warned SIAM of steep fall in sales in FY21 – 18 per cent for two wheelers, 12 per cent for passenger cars and 21 per cent in the case of commercial vehicles.

It points out that the commercial vehicles segment is already carrying excess capacity (GST impact and lower axle lading movement of goods due to the weak economy). With logistics disruption likely to continue in hot zones and customers in no mood to invest, this sector will show a delayed recovery, said PwC.
 

PWC also predicted that there will be a sharp downgrading by buyers – consumers who buy passenger cars or two wheelers will go one segment lower. But one good thing it said is that online sales will now grow across the auto sector. Also, rural market recovery will be slower than urban. This  will have repercussions on sale of two wheelers.
 

Also, the consultancy firm said Indian consumers are expected to show the same behaviour as China where preference for taxis and car hailing went down by 15 per cent post Covid-19.
 

Even public transport was hit with a 3 per cent decline in preference among users.
 

The presentation also estimated that global supply chain disruption impact on auto companies would continue for over six months. According to estimates, the top five at risk in auto components constitute nearly 79 per cent of all component imports (by value) in India.
 

As much as 31 per cent of components come from countries that are at high risk, including China, Germany and South Korea.

PwC also points out to some key factors, which will impact automotive demand over FY21.
 

It is to be seen whether OEMs will defer launches and whether they will offer high discounts as well as pass on the BS-VI cost increase to consumers.
 

Another thing to watch out for is whether vehicle financing costs will come down sharply.
 

Also, a key factor would be what sops the government offers to the industry to reduce taxes and duties.