11 May 2020
Posted in Automotive
Poor consumer sentiment a concern for India’s automotive industry, says GlobalData
Following the news that Maruti Suzuki India Ltd (MSIL) has re-opened 600 dealerships, which were shut down due to lockdown as a result of coronavirus (COVID-19) outbreak and is set to resume production at Manesar plant on 12 May 2020;
Animesh Kumar, Director of Automotive Consulting at GlobalData, a leading research and consulting company, offers his view:
“In past few months, COVID-19 has significantly impacted automotive production as well as sales volumes in India. Initially, productions were curtailed but later, due to the worsening of the situation that warranted nationwide lockdown, plants of vehicle manufacturers as well as component suppliers were shuttered. After the relaxation of lockdown norms in some regions, several OEMs including Hyundai and BMW have resumed automotive production. Mahindra and Mahindra (M&M) has started the pre-production activities at its Chakan plant in Pune. Skoda has resumed plant up gradation activities and would start production by 17 May 2020. It is unlikely that automotive plants would immediately start operating at pre-COVID-19 capacity. A cautious approach, which ensures workforce safety and social distancing will have to be taken. Moreover, supply chain issues like unavailability of parts would also prevent plants to operate at usual capacity.
“While the resumption of automotive production is a positive news for the supply-side, the demand-side also has something to cheer about. Over 1,000 automotive dealerships of various brands have resumed operations across the nation. It includes 600 odd dealerships of Maruti Suzuki India and 150 outlets of Hyundai. Others brands that have opened dealer outlets include Toyota, M&M, Honda, Bajaj Auto and Volvo Eicher Commercial Vehicles (VECV). The automotive dealerships witnessed significant decline in footfalls in early March and a complete halt after the announcement of lockdowns in late March. April marked the darkest hour as the India automotive industry recorded zero sales. Opening of dealerships bring hope of sales witnessing growth in coming months.
“While opening of dealerships bring hope of sales witnessing growth in coming months, there are serious concerns around consumer sentiments. There are some car buyers who had completed the transactions before the announcement of lockdown and are waiting for delivery of vehicle. This category of customers will see no impact as dealers have started delivering vehicles to them. The concerns are around the customers who had booked vehicles after paying a nominal booking amount as well as other customers who intended to make a vehicle purchase in the short-term.
“With the uncertainties around the state of the economy and jobs, customers are likely to stay away from big ticket purchases like property and vehicles. Over 75% vehicles in India are purchased through auto finance and interest rates and penalties are quite steep. Customers would be concerned about the penalties if they are unable to make the payments even for a short duration. Initial reports confirm the concerns as there are reports of dealerships witnessing extremely low footfalls and a high number of booking cancellations.
“To counter the situation, OEMs are coming up with attractive incentives, which include zero down-payment, instalment holidays, 100% on-road financing, vehicle loan repayment assurance or EMI assurance, cash discounts, exchange bonuses and extended warranties.
“If the COVID-19 as well as economic situation do not worsen, customers would eventually start coming to the dealerships. In post-COVID period, due to the concerns regarding safety and hygiene, customers are likely to reduce the use of shared mobility – especially ridesharing – as well as public transportation. Customers are likely to opt for personal mobility and the sales of both new and used vehicles should pick up once the outbreak is over. Till then, OEMs and dealers should continue to launch attractive marketing campaigns as well as promotions in order to lure the customers to the dealerships. OEMs must also revisit their supply chain strategy and initiate the process of identification of direct and indirect risks in supply chain as that would help in preventing similar crisis or at least in decreasing the impact. Lastly, it is time that the automotive industry takes firm steps towards digitalization and adoption of digital retailing. Market participants must also help the customers understand and get comfortable with technology.”