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Strong March quarter show restricts automobile sales decline in FY21 to 13.6%

Yet, this was the second straight year of double-digit decline in the auto industry. The low base helped prop up numbers in one quarter but makes the narrative even more worrisome for the full year

Strong March quarter show restricts automobile sales decline in FY21 to 13.6%

Malaise in auto sector is structural

A strong rebound in the last quarter, where sales jumped nearly 26 per cent over last year, restricted overall decline in sale of automobiles during a pandemic-hit fiscal 2021 to 13.6 per cent at 18.6 million units.

In a year where at least two months of sales was lost due to the lockdown in April and May last year, it could have been much worse. Industry body Society of Indian Automobile Manufacturers (SIAM) had at the start of the fiscal in April 2020, when the pandemic was still fresh, said sales could potentially shrink by over 20 per cent to just 15.5 million units. The relatively modest decline was part of its most optimistic projections then.

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Passenger vehicles presented the biggest bright spot with just a 2.24 per cent drop in sales at 2.71 million units against 2.77 million units of 2019-20. In the last quarter of the year, sales grew by 42.4 per cent at 933,583 units, which was the highest ever for a quarter. A mix of pent up demand and a shift in preference from shared to personal mobility has help growth in the segment.

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In percentage terms, other segments also grew in the last quarter, but unlike passenger vehicles, absolute volumes did not hit a peak. Commercial vehicles grew 43.2 per cent during the quarter at 210,356 units but it was still less than the tally in the same quarter in 2018-19. Similarly two-wheelers registered a 24.3 per cent growth in the last quarter at 4,353,599 units over 2019-20 but it was again lower than 2018-19.

"If we look at the fourth quarter January-March 2021 sales, which might include some deferred sales from previous quarters, only passenger vehicle segment at 9.34 lakh sales was marginally above the previous high of January-March 2018 at 8.62 lakh. Commercial vehicles sales at 2.10 lakh in January-March 2021 were below 2.82 lakh in January-March 2018," said Rajesh Menon, Director General, SIAM. "Similarly, two-wheeler sales in January-March 2021 stood at 43.54 lakh against January-March 2018 figures of 51.13 lakh. Three-wheeler segment was the worst-hit with a sales of 0.86 lakh in this quarter compared to 1.97 lakh in January-March 2018."

Yet, this was the second straight year of double-digit decline in an industry that accounts for nearly half of the manufacturing GDP in the country. The low base helped prop up numbers in one quarter but makes the narrative even more worrisome for the full year. For two-wheelers - the biggest segment of the industry in terms of volumes - sales have now shrunk to levels below fiscal 2015. For commercial vehicles its below fiscal 2011 while in three-wheelers its pushed back nearly two decades to below fiscal 2003. Even for passenger vehicles, absolute sales are now below fiscal 2016. Pandemic has ravaged the industry but its not the only reason. The malaise is structural.

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"A deep structural slowdown in the industry even before the pandemic, combined with the impact of COVID-19 in 2020-21, has pushed all vehicle segments back by many years. Recovery from here will require time and efforts, by all stakeholders," said Kenichi Ayukawa, President, SIAM, and the CEO of country's largest carmaker Maruti Suzuki India Ltd. "There is uncertainty in the value chain owing to semiconductors, lockdowns and raw material. In an environment of uncertainty, instead of trying to predict the future, we will all work hard to create it."

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At a broader level, the $120 billion industry does not seem to be in great shape. From a high 12.8 per cent average growth per annum in the first decade of the millennial, progress has stunted to just 1.8 per cent in the second decade. Break it further into 5-year spans and compared to a growth of 5.7 per cent in the first half of last decade, there was a decline of nearly 2 per cent in the second half. The industry is shrinking and the pandemic is still raging.

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