The passenger vehicles, commercial vehicles and tractor market are all set to hit a new peak this financial year. Even entry two wheelers and cars have started witnessing traction - FADA.
27 Dec 2022 | 24779 Views | By Ketan Thakkar, Shahkar Abidi
Manish Raj Singhania, President of the Federation of Automotive Dealers Association (FADA), the apex lobbying body for retail owners, says the various segments of the automotive market have already crossed pre-covid levels and are on course for a record year barring two wheelers.
With the recent revival in two ...
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Manish Raj Singhania, President of the Federation of Automotive Dealers Association (FADA), the apex lobbying body for retail owners, says the various segments of the automotive market have already crossed pre-covid levels and are on course for a record year barring two wheelers.
With the recent revival in two wheelers and entry cars helped by the wedding season and discounts in the marketplace, FADA expects a healthy FY-23 for the industry.
Singhania says he is cautiously optimistic and he believes that the current pace of growth should continue for the next few months but it is still early to call that the industry is "firing on all cylinders." In a freewheeling interview, to Autocar Professional's Shahkar Abidi and Ketan Thakkar, Singhania gave his insight on the market for the year and what to look forward to.
Edited Excerpt
Could you recap the year for us from an Auto retail perspective and what to look forward to? What were the headwinds and tailwinds you faced during the year?
During the period from April to November 2019, the automotive industry's total retail sales stood at about 150 lakh. In comparison, the sales reached 143 lakh between April and November 2022, which is just about 7 lakh vehicles short.
On the strength of this consistent growth, the auto industry is getting close to its pre-COVID-19 levels. This is despite the industry facing significant headwinds like increases in the interest rates, sustained disruptions in the supply of certain components, and shortages of semiconductors.
Even though we believed that all of this may have an impact on the demand and sales numbers may fall, the market is still moving up and customers are coming out to buy vehicles.
So, are we approaching pre-COVID level sales?
The retail industry data released indicates that November 2022 recorded the highest sales in the history of the Indian automobile industry, with March 2020 being an exception when retails were higher due to the BS-4 to BS-6 transition.
In November 2022, total retail vehicle sales increased by 26% year over year. Each category was closed in the green. Two-wheelers, three-wheelers, passenger vehicles, tractors, and commercial vehicles increased by 24%, 80%, 21%, 57%, and 33%, respectively.
When compared with the November 2019 period, total retail vehicle sales ended the month with a 1.5% increase. With the exception of 2W, which experienced a negligible decline of -0.9%, all other categories were in the green, with 3W, PV, Tractors, and CV each experiencing growth of 4%, 5%, 61%, and 6%, respectively
So, overall, I was just analyzing the data for a seven-day period until, you know, 21 days, and it was showing not such a good growth, and we got it right: passenger cars were really lagging behind it, but suddenly, the last 10 days saw a surge in passenger car registration, resulting in a year-on-year growth of nearly 21 percent.
Even though supply was tight prior to the holiday season, we were talking about 8.5 lakh bookings in hand for passenger vehicles prior to the festive season, and we are still talking about eight lakh bookings in hand post-festival. So, the models that are heavily booked and in demand continue to command a strong position, and the waiting period continues to exist.
However, with supplies stabilizing, dealers now have two categories of vehicles: those that are already in stock and those that are being accumulated. now. The OEM schemes are coming in to support the retail sales of these vehicles in terms of corporate rates, discounts, and others. So those things that were completely absent last year are now accumulating.
And there are a second set of models that every OEM is carrying or that every dealer is carrying, which are in good numbers, but there is a constraint on supply. If you see passenger car growth, it has crossed over to 22,95,000 retail units from 18,62,000 units earlier. Its phenomenal rise is apparently an all-time high in the PV retail sector.
Until August, we could see the struggle in the two-wheeler segment, but after that we could see numbers moving up in the two-wheeler segment too.
In contrast, the PV segment had a bull run right from the very start of the year.
Likewise, in the tractor segment, during the pre-COVID-19 period, sales were about 3,75,000 units, which went up to 4,18,000 units in 2020. It went up to 4,37,000 units in 2021, and in 2022, it has crossed over to 4,86,000 during the April-November period of the current fiscal year, which is also a phenomenal growth. So the majority of the sectors are pulling in some impressive numbers.
Can you throw some color on what's happening in terms of rural demand?
This kind of growth can never happen without the support of rural demand. If you see the entry-level vehicles in the two-wheeler segment—SUVs and maybe even high-end bikes—they would definitely be contributing to this growth rate in terms of percentages. Two-wheelers grew by 23% in November, tractors by almost 56%, and passenger vehicles by 21%. I mean, whatever data is being disseminated in the market indicates a positive trend. On top of that, normally Q4 comes out to be among the best periods in a financial year for the auto retail industry. It is all looking positive, except for the rising repo interest rates and oil prices, which anyway do not have an immediate impact on buying decisions.
Could you reflect a little bit more on the two-wheeler market because it has been the biggest laggard in terms of overall auto retail sales?
We started the April–November 2019 period with 117 lakh units, this fell to 70.85 lakh units during the same period in 2020. Further, during April–November 2021, there was a bit of improvement to 81.8 lakh units, and now in 2022, during the comparable period, it is 105 lakh units. So it is only a 12 lakh vehicle drop in this period. The recovery in the two-wheeler segment has begun; we could start seeing year-on-year growth from August, and festive finally came in with double-digit growth, which is almost a 50% spike, and November has also resulted in almost 23% growth on a YoY basis in two-wheelers.
So, there is a noticeable recovery in two-wheelers. Furthermore, I believe that the two-wheelers benefited the most from the current marriage season. On top of that, with the crop income coming in the farmers hand from November -December onwards. That will also ensure that the two-wheeler segment continues to perform well in the coming months.
Also, the entry passenger vehicle also will continue to start delivering decent numbers at least in coming months, because all this harvest season will definitely bring a lot of money to the rural economy. There have been trends since long that whenever a farmer gets money, he normally spends it on land, house and automobiles of some kind. So, that's a very positive side to the coming quarter, and overall, the crop has been decent across India, which will really ensure a good flow of funds in the rural economy.
Fair to say if the two wheeler industry is out of the woods finally?
We are cautiously optimistic. Just because those two months have been good for two-wheelers, we should not assume that all cylinders are firing. Normal observation should be for almost three-four months continuity to have this kind of performance. Then only can we confidently say that all cylinders are firing. So, we would continue to observe in the coming two months also, but the stress on the dealers is easing.
In October, two-wheeler dealers had a paid-up stock of 45 days, which in November has come down to almost 30-35 days on average, which is a reduction of almost 10–12 days. So that's a very positive sign.
In fact, if you look at the wholesale numbers, in October, the industry billed 14,97,000 units, the billing came down to 11,77,000 units in November. In comparison, retail sales were at 18,47,000 units. So that's a really good sign that stocks have been reduced at the dealer level and customers are forthcoming and buying vehicles across the length and breadth of the country, except for a couple of states. Let's observe for another two months and then confidently say yes, this segment is kind of revived, but the stress has definitely gone up from the dealers’ shoulders now.
What about commercial vehicle growth?
Commercial vehicles (CV) have been performing really well, month after month. We have seen definite growth in the last three months. from 52,000 to 59,000 to 79,000. So that's a steady increase. In our survey it was clearly reflected that fleet buying has increased in CV. So, government spending has also continued for infrastructure space. New mining projects are also coming, and replacement demand for faster vehicles is also increasing, just as the road conditions are improving, which allows for better turn-around time.
So, demand for replacement vehicles has also continued to pour in. for better and healthier interstate passenger movement.
However, we are yet to see a boom in bus sales because a lot of public sector transport systems are not yet fully operational. Interstate buses are not yet fully operational and have yet not come to complete normalcy. So, if that comes in, then the bus contribution to commercial vehicle retail will also definitely increase.
The April-November data in CV shows that we were at 5,64,000 at pre-Covid19 times in 2019, this had dropped to 2,21,000 units in 2020 and then subsequently improved to 3,97,000 units during 2021. Now, it has crossed pre-Covid19 levels and stands at 5,80,000 units’ registrations, that's a very healthy sign for the CV segment also.
So, except for two-wheelers, every segment, including CVs, PVs, and tractors, would be creating a new record for this financial year in terms of numbers.
RBI’s hardening stand on interest rates, is that a cause of concern?
So, for passenger cars, it hardly matters as loan EMI tenures have increased to 6-7 years, and maybe a 35 BPS point increase would not really matter, though a cumulative increase of 225 BPS points since May will definitely have an impact.
All this is not deterring the customer from buying a vehicle, as the demand for PV continues to grow, and in terms of EMI, it comes to a very small amount for a passenger car customer. However, for entry-level car or entry-level two-wheeler customers, this EMI would definitely make an impact.
The RBI has hinted at more hikes in the future. So, it is one of the things that does not have an immediate impact, but the higher cost of borrowing combined with a rapid price increase by the OEMs can hurt consumer confidence, especially in two-wheelers and entry-level passenger vehicles.
Since most of the CV operators in India own just about 1-2 vehicles. Do you think the repo hikes will start impacting them?
I don't think so right now since business everywhere is growing. There is a very rapid increase in the movement of goods. Even if I see the auto industry, every OEM has been struggling to arrange the containers to supply the vehicles to the dealers. The increase in production has been good and has been going up month after month after month.
Trailers, as well as trailer operators, were also very limited. Therefore, there has been a struggle with the arrangement of trailers with all OEMs across India in the automotive space for the last one and a half years. Since numbers are rapidly increasing, the availability of trailers has not gone up. If you can see, a lot of OEMs have opted for transportation by rail because the availability of trailers is causing a supply or, you know, transit time issue. So, it is just not this case specific to the auto industry, every industry has been moving fast and gaining ground post Covid19.
So, right now, as goods movement is rapidly increasing across the country, one is witnessing a major impact.
However, the fuel price increase as well as the rate increase would not have an immediate impact on purchasing. It's a long-term running expense. If the operator is able to manage a decent profit, which I'm very confident he's able to do right now, I don't think it will act as a deterrent to the CV operators.
But all this actually leads to inflationary costs for the overall economy. Do you see inflation as a big challenge going ahead (for the auto retail industry)?
Inflation would be a different challenge and especially in a country like India. We are just talking about the people who are not getting affected, but there's a huge mass out there, which really, worries about the petrol prices or what is my EMI? If it’s a personal vehicle, it affects more, and it's if it's a commercial vehicle and if you're able to earn something out of it, then it like it doesn't deter if you end up are able to manage the finances.
But even businesses are struggling now. There has been a clear increase of almost 2.5 % in terms of extra interest burden on whatever business community may be enjoying. It will add to the inflationary trend, affecting the common person in the country.
So, the government has to keep a keen eye and good control of such things so that the common man doesn't get affected by all these inflationary trends.
How is the liquidity situation for dealers?
Overall liquidity position is pretty okay. I think this is the normal trend in the context of liquidity. So, I don't see a cause of any worry happening on liquidity front
Do you see, it could derail the growth which the auto industry is witnessing right now?
For a person buying a car of Rs 10 lakh, how much 35.35 basis point will affect per lakh of EMI. If you look at it, you know maybe Rs 35 rupees per lakh or for Rs 10 lakh, it could be Rs 350 rupees. So, that's a very small amount for that customer.
So, passenger car vehicles and especially with people really coming out, it seems everybody wants to own a vehicle now, whether it's a two-wheeler or passenger car, their requirement would definitely be there. That's why this purchasing spree would be happening there.
Now, we are only talking about the urban India who have been going for a passenger car spending. But in the past two months, it seems that even rural India is spending well now.
So, it's only the customers who want to purchase an entry level bike or a car in the price range of Rs 4-6 lakh bracket, who may get affected. If there is a need for mobility in that household then they will definitely go for that vehicle. If they can arrange for an alternative transport, they will avoid it. With Covid19, people have realized the importance of personal mobility. So, the auto industry has been really taking off.
Even three wheelers have seen a significant surge recently, can you explain?
I would say public transport is not being fully operational as a major contributor of three-wheeler retails rising up.
Three-wheelers always made a decent profit for whoever owned the three-wheeler, as the operation remained within city limits. However, during the Covid19 times there was a huge crisis for three-wheelers as total movement was disrupted, EMIs got overdue. This led to a lot of issues not only for the financers but also for the customers.
But even as schools, colleges, offices and other places did open up, the public transportations however, did not become fully operational. This has contributed to a huge boom of three-wheeler retail.
Plus, the electric three-wheelers are the flag bearers of EV revolution happening in India. Now, about 55% of retails are happening in e-three wheelers.
Secondly, a lot of migrant laborers came back to their original cities and towns and a lot of them haven’t gone back. They bought three wheelers and tractors as a mode of employment. Once they stay back, such people need to generate some income for their families. Such people have therefore turned out to be major contributors in the exponential sales of tractors and three wheelers. In short, they have turned these two segments into a business model as they are buying these vehicles, not only for their captive uses, as apart from that they are renting it for carrying bricks and other usages.
Also, in an e-three-wheeler, one does not require a permit unlike an ICE one. It has made it convenient for them to buy e-three wheelers and not get harassed by the RTO department. So that is also an additional opportunity for the customer.
You spoke about EVs, how is the segment gaining momentum?
The growth in India seems to be happening from top to bottom. It is the Government which is driving the change, which is in contrast to some of the evolved economies in Europe.
The EV industry globally is going through a lot of struggles which includes setting up of charging infrastructures, standardization of charging points amongst various OEMs, etc which is being pushed by the government in our country. It has therefore become a kind of mandate, which will drive electrification going ahead.
But from a customer standpoint too, you have started witnessing a strong traction and penetration in two wheelers and three wheelers – with more choices, you expect the segment to grow exponentially and the government’s mandate supports this transition.