After the easing of lockdown in mid-May, auto companies were able to resume production in a phased manner, but the ramp-up was slow due to a broken supply chain, and lockdown-induced restrictions.
After reporting near-zero sales in April, auto companies resumed despatches in May.
But the volumes were disappointing with sales of passenger vehicles declining 86 per cent year-on-year for leading players.
Auto firms in India count despatches to dealers as sales.
Maruti Suzuki, leader in the car market, sold 13,865 units domestically.
This was a year-on-year decline of 88 per cent, and a little more than what it would produce in just three days before the country went into lockdown, thanks to COVID-19.
After the easing of lockdown in mid-May, auto companies were able to resume production in a phased manner, but the ramp-up was slow due to a broken supply chain, and lockdown-induced restrictions.
Demand too remained weak and 25 per cent of the dealerships remain shut.
R C Bhargava, chairman of Maruti Suzuki, said the volume ramp-up would be gradual, pointing out that the trend seen so far did not make him pessimistic.
“So far, the improvement in demand, production, and sales looks quite reasonable, but it will be a gradual increase.
"It will not jump to the old levels anytime soon,” he said.
Bhargava expects volumes to reach the pre-COVID levels of 2019-20 in the second half of the year.
Credit rating agency CRISIL too expects demand to pick up in the second half of FY21.
“A recovery in demand is expected only from the festival season in the third quarter of this fiscal - and largely for two-wheelers and tractors, which have a higher rural share,” it said.
Other manufacturers also saw a steep drop in their sales volumes compared to last year.
Volumes at Hyundai Motor, Mahindra & Mahindra, and Toyota Kirloskar dropped by 84, 81 and 86 per cent, respectively, during the month over the year-ago period, the companies said.
Veejay Nakra, chief executive (automotive division), M&M, said: “Our performance during May has been muted, due to the challenges the industry is facing.”
M&M has opened 70 per cent of its dealerships.
Nakra said the company was seeing initial traction for its commercial vehicles and SUV brands such as the Bolero and Scorpio. Mahindra is hopeful that as the country unlocks, demand will go up in the coming months.
Companies are still having problems in ramping up production to normal levels.
“It will take time to understand whether demand is ahead of supplies or it’s the other way round.
"In two months, we will have a reasonable idea what the year looks like,” said Bhargava. Maruti resumed operations at its Manesar and Gurugram facilities on May 12 and 18, respectively.
Production at Suzuki Motor Gujarat resumed on May 25. The unit manufactures cars on contract for Maruti Suzuki.
Even though sales in May saw a huge fall, the S&P BSE auto index was an outperformer on Monday, rising 3.2 per cent against the 2.7 per cent gain in Sensex.
“With the lockdown easing and gradual restoration of normalcy across the value chain, supply side constraints are being resolved gradually.
"The street is hopeful that demand too will catch up soon,” said Mahantesh Sabarad, head of retail research, SBICAP Securities.
Analysts say the road to recovery will be long and tough.
“Despite the pent-up demand, which had started building up from mid-March, retail sales at all companies remained muted during the month,” said Mitul Shah, vice-president (research) at Reliance Securities.
Buyers are not forthcoming in purchasing new vehicles amid poor economic conditions and uncertainties ahead.
He expects sales to rebound in the second half. Hetal Gandhi, director, CRISIL Research, expects job loss and pay-cut fears dampening consumer sentiment.
“Automobile sales are running out of steam as urban income sentiment wilts under the pandemic.”
Photograph: Reuters
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