Indian auto industry to reach pre-pandemic highs only by FY24: FADA

With FY23 being the first year of Covid-19 recovery after the impact of the lockdown, which lasted two Aprils - FY20 and FY21 -- the Federation of Automobile Dealers Associations (FADA) expects the Indian auto industry may be able to reach pre-pandemic highs only by FY24 and not before.

Indian auto retails saw a 7 per cent year-on-year (YoY) rise and all segments, except tractors which fell by -1 per cent, closed in positive but fell by -25 per cent when compared to FY’20, which was largely a pre-Covid year.

While the two-wheeler (2W) segment recorded the lowest growth of 4 per cent, three-wheelers saw a 50 per cent rise, private vehicles (PV) witnessed 14 per cent growth and the commercial vehicles (CV) segment saw 45 per cent YoY growth. The organisation also revealed that the average inventory for PVs is around 15–20 days, while the average inventory for 2W is between 25–27 days.

Vinkesh Gulati, FADA President, while talking about how the domestic auto industry performed, said, “Indian auto industry during March tried its best to be at par YoY but fell short by – 3 per cent and -30 per cent when compared to March’20 (a month which saw BS4 to BS6 transition). The 2W segment which was already a non-performer due to rural distress, saw further dampening due to rise in vehicle ownership cost coupled with rising fuel cost. I once again urge all 2W OEMs to introduce special schemes to uplift the morale of this segment to boost sales.”

The recent challenges in the rural economy are due to the devastation caused by the second wave in April-June as most workers, who returned to their villages from urban areas, are yet to go back to their jobs.

Near-term outlook of Indian auto industry

FADA, in its release, also stated that the Indian auto industry’s near-term outlook will continue to remain a challenge due to the ongoing Russia-Ukraine war, lockdown in China, rising fuel prices and will continue to increase and further hit sentiments on lowering the spending.

Interestingly, the PV segment saw high demand throughout the entire year but was unable to offer enough supplies due to the global semi-conductor shortage. While there seems to be no dent in the demand of cars in the PV segment, it will have an impact on the 2W segment as it is an extremely price-sensitive market. On the other hand, the 3W segment is also witnessing a shrinking market as there’s a tactical shift from ICE to EV, which is visible as a 45 per cent 3W market is now driven by EVs.

Due to the government’s vaccination drive to save India from Covid-19’s 3rd wave, there was a negligible impact in terms of either lives or auto retails on an overall basis. In addition to this, the increase in raw material costs has made original equipment manufacturers (OEMs) increase the prices of their vehicles.

However, with the re-opening of educational institutions and offices, and the marriage season, FADA expects to see a rise in demand, especially in the 2W segment. Overall, the organisation remains extremely cautious in terms of any future recovery until the Russia-Ukraine war and China lockdown come to an end.

Long-term outlook of Indian auto industry

With the international crude prices crossing the $100 mark for the first time since 2014, this resulted in the skyrocketing of petrol, and diesel prices and has negatively impacted consumer confidence.

In addition to this, with the recent reverberations of war tilting the balance of risks downwards in the country, the Government’s thrust on capital expenditure in FY23 can act as a game-changer by enhancing productive capacity, crowding in private investment and strengthening aggregate demand.

FADA has also anticipated that there would be no further impact of Covid-19 in the Indian auto industry with vaccination being the shield. This would also help India to grow faster than other economies, it further added.