Sales of discretionary automobiles such as passenger vehicles and two-wheelers are likely to remain under pressure in the near term.
As things stand, even if the nation-wide lockdown is lifted on May 3, 2020, resumption of normal operations at automobile dealerships would depend on whether a dealership is outside the demarcated hotspots and if it has the necessary licences from the state/ district administration to operate.
Besides, GDP growth is forecast to slow down to 1.8% this fiscal, portending demand-side pressures.
To capture the magnitude of risk for automobile sales, CRISIL Research deployed a two-factor framework, comprising the industry’s sales opportunity and the size of risk from Covid-19. The opportunity was captured in terms of district-wise concentration of sales and growth momentum, and the risk in terms of district-wise assessment of present case intensity and further risks of virus spread.
Ajay Srinivasan, Director, CRISIL Research says “An analysis of district-wise sales pattern reveals that the passenger vehicle segment has higher inherent risk compared with two-wheelers, because of a relatively higher concentration of sales in the top 100 districts. These districts account for 62% of passenger vehicle sales and only 45% of two-wheeler sales, in terms of volume.”
Segregating the districts by the level of risk from the pandemic, the study shows that ‘high impact’ and ‘very high impact’ districts together account for 56% of two-wheeler sales and 68% of passenger vehicle sales in India.
In ‘very high impact’ districts, the level of risk is considerably different for the two segments, with half of passenger vehicle sales and a third of two-wheeler sales expected to be impacted.
On the brighter side, 44% and 32% of the market for two-wheelers and passenger vehicles, respectively, lies in ‘very low to moderate’ risk districts, where normalcy is likely to return relatively more quickly, although in a phased manner. In these districts as well, change in customer behaviour, and the impact of Covid-19 on consumer incomes and finance penetration
Given this, automobile manufacturers and vehicle financiers need to tactically target low-to-moderately impacted districts and also appropriately retune their strategies in high-to-very high impact districts to minimise the impact on their sales performance.
Hemal N Thakkar, Associate Director, CRISIL Research says “Players in the industry will have to devise a strategy after carefully considering their product portfolios, sales distribution by district and dealership presence – all of which are key to pushing volumes in this scenario. Prioritisation of districts on the basis of opportunities and risks will be the new matrix to work on.”
