Auto sales remain well inside positive territory in January, Auto News, ET Auto

New Delhi: Driven by the expectations of a V-shaped economic recovery, a majority of vehicle manufacturers started 2021 on a positive note, registering good wholesale growth.

There was also no shortage of positive news in January – roll-out of COVID-19 vaccines, vehicle scrappage policy, coupled with strong improvement in the country’s Manufacturing Purchasing Managers Index (PMI) which rose to 57.7 for the month which may have encouraged consumer sentiments and lifted sales.

Notably, a PMI reading above 50 indicates expansion and a print below that means contraction.

Almost all the OEMs are now operating at medium-to-high capacity utilisation levels, albeit steep hike in raw materials prices and auto chips shortage. Barring three-wheelers, sales momentum continued for passenger vehicles, tractors, and commercial vehicles due to a favourable base and low-to-stable inventory amid a rise in personal mobility preference.

PVs showed a sustained upturn

With fuel prices reaching new highs every day, price hike announcements and the effect of pent-up demand and festivities coming to an end, one might expect carmakers to face difficulties in getting their metal out of factory gates. However, beating all these circumstances, passenger vehicle sales for January 2021 were 16% higher than in the same month a year ago owing to a low base and higher demand from first-time buyers.

OEMs in this space remained largely buoyed last month as demand in urban areas too has started showing signs of improvement after the strong growth in rural areas.

According to analysts, some pre-buying effect was also visible in the first half of the month that pushed a large chunk of sale ahead of the price hike in the second half.

In PV segment, some pre-buying effect was also visible in the first half of January that pushed a large chunk of sale ahead of the price hike in the second half.Industry Experts

Market leader Maruti Suzuki that sells one in every two passenger vehicles saw flat sales volume in the domestic market in January at 1,39,002 units majorly due to negligible inventory at dealerships. While its domestic sale of mini and compact segment reported 7.6% decline to 1,02,088 units during the month under review, sales of utility vehicles – Gypsy, Ertiga, S-Cross, XL6, Vitara Brezza- jumped 45% to 23,887 units driven by urban region recovery. “We are watching white and blue spaces (in the SUV segment) and will try to see if they can increase volumes by introducing new vehicles in that space,” the company’s management said in a recently-held quarterly earnings call. The SUV share of total volumes for the industry is now at 32%, which is expected to rise to 36%-37% next year.

Sales of Hyundai, the second largest passenger vehicles manufacturer, reflected a similar sharp uptrend on the back of the decent demand for its SUVs, Venue and Creta. The company reported 23.8% YoY increase in domestic dispatches to 52,005 units in January.

In the Utility Vehicles segment, another prime player Mahindra sold 20,498 vehicles in January 2021, compared to 19,455 vehicles in January 2020, registering a growth of 5%. The company’s overall sales in the PV segment stood at 20,634 vehicles in January 2021, a growth of 4% over the same period last year.

Veejay Nakra, CEO, automotive division, M&M Ltd, said, “At Mahindra, we have witnessed a growth of 5% in utility vehicles in January. We have also seen strong bookings fueled by continued demand. The supply shortage of micro-processor semiconductors continues to be a serious challenge for the auto industry. Going forward, we are working with our supplier partners to gear up our supply chain and meet the market demand.”

The growing consumer appetite for SUVs augurs well for Kia and MG Motors as both the OEMs saw substantial sales growth of 23% and 15%, respectively. “Our supply situation is chasing demand with ramp-up continuing post the maintenance shutdown, and we expect good sales in February and March 2021,” Rakesh Sidana, director – sales, MG Motor India, said.

Domestic wholesale volumes of carmakers

Exports drive two-wheelers sales

While the domestic market remained a bit of a drag because of underperformance of the entry-level, volumes of most of the two-wheeler companies gained exponential growth with the surge in exports.

In the two-wheeler pack, market leader Hero MotoCorp’s volumes declined 4% to 4.67 lakh units in January while exports were up 34% to 18,113 units.

Bajaj Auto’s domestic two-wheeler sales were also marginally lower at 1,57,404 units compared to 1,57,796 units in January last year, the company said.

However, the company posted its highest-ever two-wheeler exports in January at 2,27,532 units compared to 1,74,546 units in the same month last year, a growth of 30%.

Chennai based TVS Motor witnessed a rise in domestic sales and exports at 26% and 43%, respectively.

Domestic sales of key two-wheeler players

CVs see green shoot

Commercial vehicles witnessed a sudden jump in demand as manufacturing, and infrastructural activity has started to pick up in the country. With improved cargo availability from the factory gates, the average fleet utilisation rate of heavy trucks has remained stable 85-90%. This has resulted in higher replacement demand coupled with tractions in additional buying as well.

Within the segment, medium and heavy commercial vehicle (M&HCV) volumes at Tata Motors and Ashok Leyland were up 22% and 54% year-on-year, respectively. Along with steady LCV performance, total volumes of the top two leaders were at -2% and 14% in the domestic market.

Industry experts expect M&HCV dispatches to continue their month-on-month recovery due to pick-up in demand for higher tonnage segments from the infrastructure segment amid overall economic recovery.

Tractor sales on uphill
For the tractor segment, macroeconomics remains conducive mainly on account of a resilient rural economy. Led by Mahindra & Mahindra, the segment leader, the first month of 2021 saw robust tractor sales growth. Aided by healthy farm output and good farm income, M&M Farm Equipment Sector saw a whopping 50% jump in domestic sales to 33,562 units in January as against 22,329 units in the same month year ago.

“Tractor demand continues to be strong with expansion in Rabi acreage, very high reservoir levels and higher liquidity in the hands of farmers with timely Kharif procurement. Demand is expected to remain robust on account of these factors,” Hemant Sikka, president- Farm Equipment Sector, (Fill the company’s name)

Another key player in the segment, Escorts, said that it was able to service all demand for the first time post lockdown. The company’s domestic tractor sales in January 2021 were at 8,510 units, up 45.6% against 5,845 tractors in January 2020.

“The supply-side situation is normalising and is no longer expected to be a bottleneck to meet demand. However, rising inflation continues to be a worry,” Escorts said.

Sonalika Tractors sold 8,154 unis in the domestic market in the month of January 2021, as against 5,585 in the same month last year, witnessing a growth of around 46%.

Three-wheeler segment stayed a laggard

With the drastic fall in mobility requirements due to the work from home culture, fear of infection from vehicle sharing, and inherent financing problems, the three-wheelers’ monthly domestic wholesales have not reached even half of last year’s levels. Hence this industry is considered to be a laggard and recovery seems unlikely until at least H2 FY22.

With the drastic fall in mobility requirements due to the work from home culture, fear of infection from vehicle sharing, and inherent financing problems, the three-wheelers’ monthly domestic wholesales have not reached even half of last year’s levels. Hence this industry is considered to be a laggard and recovery seems unlikely until at least H2 FY22.

Passenger carriers, which constitute more than 80% of the total three – wheeler sales volume, have recovered only 30%-40% of pre COVID level wherein cargo segment is back to 70 – 75% of the normal level on the back of increased e-commerce sales. However, with the gradual resumption of the services sector, a good lead indicator, analysts are expecting a much faster recovery in cargo demand in the coming months.

On the financing front, analysts expect that as the drivers get more trips due to the return of normal traffic and their daily incomes improve, financiers will resume lending to three-wheelers.