Auto sales to improve in July as supply chain, labour issues recede

Automobile sales in July 2020 are likely to witness a further improvement over June on the back of ramp up in supply chain, boost in rural sentiment and rise in preference for personal mobility to follow social distancing norms. According to a report by Nirmal Bang Equities, dispatches from OEMs are likely to improve sequentially on further ramp up in plant utilisation levels following the recovery in supply chain and labour issues. But dispatches are expected to be lower on a year-on-year (y-o-y) basis even on a low base.  

"Our interactions with dealers suggest that retail sales have come off sequentially due to the imposition of strict local lockdowns across various states in July. However, wholesales are expected to be higher than retail sales as OEMs fill the channel inventory, which remains substantially lower than normal level," the report said.

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Passenger Vehicle dispatches are expected to improve sequentially but are likely to remain lower on a y-o-y basis. "According to commentary from some PV OEMs, enquiries, bookings and retail operations have reached 85-90 per cent of normal level in July. Our channel checks suggest that demand has been higher in the entry level segment," it added.

Two-wheeler (2W) dispatches are expected to see further recovery on further ramp up in supply chains, thriving rural sentiment and rise in personal mobility needs on account of coronavirus. All the 2W OEMs have taken a price increase of about Rs 1,500-2,000 over the last two months. Tractor dispatches are expected to outperform other segments given the strong rural sentiments on the back of decent rabi procurement, good monsoon leading to better kharif sowing and farm labour shortage. The government's stimulus package and increase in MSPs for kharif crops have further boosted rural sentiments.  

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Further, the report expects commercial vehicle (CV) dispatches to remain dull as CV remains the worst affected segment due to economic slowdown, excess capacity and limited driver availability. 

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