Indian automakers are at crossroads – on one hand they are facing increased input and commodity prices and on the other pent-up demand and festive spending are expected to decline after December.
Prominent carmakers such as Maruti Suzuki, Hyundai and Kia Motors have decided to pass on the rise in input costs they have been incurring since June to their customers from January onward. All three carmakers have indicated that there will be price revisions across all models, but have not yet revealed the extent of the hikes. Other smaller players such as Ford India and Nissan have made similar plans. Industry experts said that MG Motor India and Honda Cars India are also likely to follow suit, while Tata Motors has stated that no decision has been taken yet.
Rating agencies expect that such a move will dampen auto sales and that a return to pre-Covid level sales will take longer. Fitch Ratings has said the hikes come at a time when the boost in some categories from pent-up demand and festive spending is fading, and that the economic impact from the coronavirus pandemic will reassert itself after December 2020.
Fitch said though the extent of the price rise is not clear at this stage, it could range from “low to middle single-digits” depending on the model and company. The rating agency warned the price increase will further increase the cost of owning a vehicle by 15% from April 1, when more stringent BS6 emission norms kick in. This will further dampen consumer sentiment amid an already weak demand scenario.
Another agency, Care Ratings, expects the impending price rise to cause a yearly contraction of up to 14% for passenger vehicles in the current fiscal year. The fall will be steeper for two-wheelers (18%), 3-wheelers (73%) and commercial vehicles (30%). Only tractors will buck the trend on the back of a resilient rural economy and register a growth of 16% for this fiscal. However, it expects sales to dip between December and February, but pick up from March.
The agency noted that the automotive sector has linkages with multiple industries, including steel, paints, plastics, glass, electronics, leather and others, and hence an upswing will have a positive impact on these industries.
Like most other industries, the automotive sector was badly hit during the two-month long countrywide lockdown from March 25 to May 25, as showrooms remained shut and people deferred their purchase decisions. The situation gradually improved after the easing of lockdown and after July passenger vehicles even returned to growth on the back of pent-up demand and the festive season. But the November sales indicate softening of the demand.
However, there was no such relief for the commercial vehicle segment. During the quarter ended September 30, it fell 20% year-on-year, while in the preceding quarter it plunged 85%.