Passenger vehicle sales rise but manufacturers struggling to fulfil demand

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Covid-19 pandemic saw a huge fall in several businesses, including the automobile industry. But after the fall, the auto sector saw a V-shaped recovery from April 2020 till now. Private vehicle segment sales have bounced back sharply in recent months, faster than anyone had initially expected.

According to experts, whatever sudden demand popped up was due to fulfillment of pent-up demand during lockdown and the festival season. But the numbers from January this year have shown a sustained demand, banishing concerns that sales would drop out soon after the festive season which eventually gave rise to the highest demand and supply ever.

According to  Vinkesh Gulati, President of Federation of Automobile Dealers Associations (FADA), “Overall waiting period is high as the order bookings are high. Demand has seen growth but it’s not huge, the gap between demand and supply is huge. The major reason for which is a shortage in supply due to semiconductor chips used in a vehicle’s electronic components, infotainment issue, and some other parts issue has severely affected automotive production abroad, as well as in India.’’

During the lockdown manufacturing companies too had to halt their work completely and the labourers working in these units returned to their hometown. Many small manufacturing units closed down due to the pressure of loan repayments. Also, the supply chain hurdles affected the sales recovery.

According to auto expert Tutu Dhawan, “Bringing back the labourers and training them again is taking the time and this is also one the main reasons manufacturing units are not able to bring back their normal production, pertaining to which the demand and supply difference has arrived’’.

Vehicle usage has now returned to pre-covid levels as private cars are coming back very strongly. But, even after seeing this strong recovery, it is difficult to analyse the position of and progress of the industry as experts are fearing that the market is still not financially stable. Adding on to this, the budget 2021 announcement on raising custom duties to 15%  on auto components like frames and forks, wheel rims & spokes, hubs, brakes, saddles, pedals & crank gear, etc will have a negative impact on the current situation.

This will increase the cost of production in the sector in the short to mid-term till the time manufacturing of these components gets developed in India and any increase in the acquisition cost can be dampened.