Teji Mandi Explains: April forecast suggests grim outlook for auto industry

The auto industry has once again come under the impact of the surging number of COVID-19 cases.

As per the Federation of Dealers Association, passenger vehicle sales are likely to fall by 11% in April at 2.85 lakh units, compared to a month ago in March. Retail sales have seen a sharper fall of ~55%, and it is likely to be in the range of 1.5-1.8 lakh units in April.

Partial lockdowns and other restrictions have affected consumer sentiments. As a result, all the major PV makers have restricted their factory activities.

Maruti Suzuki has allotted its plant in Haryana for the production of oxygen. MG Motors has also closed its Gujarat plant. Tata Motors has also announced that all its plants will be closed from May 1-3.

Outstandings Rising on Auto Loans

While new sales are struggling to take off, there is more bad news for the overall ecosystem. According to the latest RBI data, the financial year 2020-21 has seen a sharp increase in vehicle loan outstanding.

The outstanding vehicle loans with banks have hit a new high of Rs 2,39,400 crore in FY21, an 8.5% jump from Rs 2,20,600 crore at the end of FY20.

As per the industry experts, it could be due to a combination of factors. The rise in loan outstanding can be attributed to the loan moratorium facility availed by the fleet operators last year.

The data also indicates that salary cuts and economic difficulties have forced customers to opt for lower down payments and higher loan amounts. A combination of these factors could be contributing to the higher outstandings on vehicle loans.

Closing Comments

Cars and vehicles still have an aspirational value in India. Car sales have always been good when the economy is booming. But, the economy is currently struggling under the impact of the pandemic. And that is captured by the latest trend in the automobile industry.

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