Domestic auto sales in India go below 2015 levels amid Covid-19 crisis

CARS AND TWO-WHEELERS did not find many takers in the year affected by the pandemic, an outcome which was quite evident when lockdowns, local­ised restrictions, and job/income losses took away the appetite to buy new vehi­cles for personal mobility. Consequently, domestic sales of automobiles in India in 2020-21 went below the 2015 levels.

Although this might sound worri­s­ome, the situation was not very differ­ent globally. Globally, car sales in 2020 were the lowest since 2013-14, shows chart 1. Though this isn’t a like-for-like comp­a­r­i­­son — overall auto sales in India and cars globally — it still shows that dem­a­nd for automobiles was subdued globally.

In India, sales from auto manufact­urers to dealers (wholesale) did not fall as much, compared to the sales from dealers to consumers (retail). Consumer sales were hit harder, chart 2 shows. This suggests that unsold inventory with dealers may be very high going into 2021-22, which may require less production this year.

The chart also shows that car sales have taken a smaller hit compared to two-wheeler sales. This could mean that low-income households have been affected more by the pandemic. Chart 3 corroborates this. Wholesale sales of utility vehicles, which are costlier on average than passenger cars, did not fall in the first year of the pandemic.

In a year when vehicle sales fell, bank credit to buy vehicles has actually risen. It also witnessed higher than ove­r­all credit growth. Chart 4 shows how banks bene­fit­ted even during auto slu­mp. This could mean that non-bank fi­n­ance was hit significantly, and the pre­ference for direct cash buyout declined.

Adding to the fact that dealers may have large inventories, the second wave of Covid-19 may further dent demand. The pressure on the public health system is forcing governments to resort to lockdowns, which is likely to result in jobs/income losses.

Then, there are rising input costs. Auto­makers have already hiked car prices multiple times since the pandemic began. Input costs grew faster than sales in the quarter ending in December 2020, chart 5 shows. The situation would not have been much different in the March 2021 quarter.

The newest class of vehicles, electric vehicles (EVs), seems to be benefitting in the time of crisis. Share of EVs in global car sales rose in 2020. About 3.2 per cent of cars sold in 2020 were EVs, reveals chart 6. But EVs are not picking up in Ind­ia yet due to lack of affordability.

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