Preference for personal mobility to boost auto sales in July: Report

Strong inquiries for passenger vehicles and two-wheelers, rising footfall post-lockdown easing in tier 2 and tier 3 cities, increased preference for personal mobility, and wedding season demand are expected to boost auto sales in July, a report has said.

Business is also expected to be driven by further improvement in rural demand (owing to early monsoon and manpower availability for agriculture activities) and product availability due to ramp up in production, Dolat Capital said in its report on the automobile sector on Monday (June 29).

Noting that while the two-wheeler sales momentum looks stable, the recovery in passenger vehicles demand looks elusive due to short-lived nature of pent-up demand, it expects two-wheeler demand to pick up further (low-ticket, utility-driven purchases).

However, risk-aversion and wealth impact of the COVID-19 pandemic could affect replacement purchases and upgrades of around 50 per cent of sales in passenger vehicles.

Two-wheeler retail sales have improved during the month with good demand from up-country markets lifting the sales, Dolat Capital said, adding that except Maharashtra, Gujarat, Tamil Nadu (post-lockdown, from June 15), retail demand is recovering quickly.

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Entry-level bike segment witnessed most inquiries owing to down-trading of vehicles as demand continues to recover on the back of improvement in rural sentiment and low interest rate, it said.

According to the report, dealers are benefiting from the recent Emergency Credit Line Guarantee Scheme, which offers 20 per cent extra working capital financing at 7.25-8.5 per cent to dealers with turnover below ₹1 billion (₹100 crore).

Observing that tractor sales are recovering at a faster pace, it said the segment is seeing volume recovery driven by improvement in farm-level indicators such as output prices, lower input prices, higher government spending in rural areas, and expectation of normal monsoon and adequate water reservoir levels.

“For passenger vehicles, we expect risk-aversion and wealth destruction to impact replacement/ upgrade purchases (around 50-55 per cent of industry sales) in near term. Certain end-user industries like real estate and tourism, could witness prolonged demand weakness.

Loan rejection rate is high for finance companies given the uncertainty of customers income and moratorium they have opted for different loans, it said.

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On commercial vehicle demand, the report noted that about 50 per cent of the trucks are still standing idle and there is cut-throat competition for loads.

The EMI moratorium, which has been extended from three months initially to six months, is only a breather, not a waiver on repayment. Banks and NBFCs are in a tight spot themselves in fear of rising non-performing assets, it added.

At the same time, the three-wheeler sales is expected to witness sharp fall with financers turning cautious in tendering new loans for these vehicles owing to the falling income level of drivers, amid this segment opting for up to 70-80 per cent of loan moratorium, as per the report.