Pandemic drives demand for passenger vehicles

The Covid-19 pandemic is making many city dwellers shun public transport and invest in their own vehicles in India, bringing some much-needed cheer to the world’s fourth-largest automobile market.

Several issues have been plaguing India’s auto sector ever since the pandemic hit the globe, including the worldwide semiconductor shortage, rise in input prices and a dearth of cargo containers. With the ongoing surge of Covid-19 cases led by the Omicron variant, analysts expect a majority of these issues to persist in 2022 in some form.

The revival of demand for passenger vehicles in the world’s second-most populous country will put the sector on the path to recovery despite the shortfall in production due to the chip shortage, analysts and company executives said.

“Because of the greater sensitivity to health safety issues, the consumers have moved away from public transport and shared mobility and are inclined to personal transportation,” said Shashank Srivastava, Senior Executive Director, Marketing and Sales at Maruti Suzuki India. “The buying for functionality and utility has increased and this is reflected in the increased first-time buyers and the reduced replacement buying.”

Industry watchers agreed.

“The return of demand in the passenger (PV) and commercial vehicle (CV) segments have been the tailwinds for the sector,” Rajeev Singh, Partner and Automotive Leader, Deloitte India said, highlighting how 70% of the demand for PVs came from urban markets.

Despite the second Covid-19 wave and supply chain issues, the Indian Passenger Vehicle industry could touch the 3 million sales mark, only the third time in Indian Auto industry history that this milestone will be achieved, Srivastava pointed out.

“This bounce back in the demand parameters give(s) optimism for the future,” he said.

A global automotive consumer study by Deloitte revealed that 64% of Indians plan to buy their next vehicle to avoid public transport. This percentage is higher than all other leading markets surveyed including China (44%), the US (31%), Japan (30%), and Germany (25%).

Emkay Global Financial Services expects the PV revenue to grow in the quarter ending December 31, 2021, led by the pending order book and improving chip supplies.

Tata Motors’ PV business recorded decade-high quarter and monthly sales in December 2021 despite witnessing a shortfall in production.

“Going forward, we expect the demand for passenger ICE (internal combustion engine) and electric vehicles to remain strong even as concerns about the supply of semiconductors and high input costs continue alongside the uncertainties connected with the Omicron variant,” the company’s spokesperson told DH.

Weak rural demand

On the other hand, the demand in the two-wheeler segment has not recovered ever since the second wave of the pandemic battered the rural economy.

Its year-on-year sales growth each month has been negative since September 2021, data from the Federation of Automobile Dealers showed.

“About 60% of the demand for 2-wheelers comes from rural markets. The second wave of the pandemic hit the rural economy very badly,” said Singh.

Singh hopes that decent winter and monsoon seasons this year will set in a good sentiment in the rural economy and help revive the demand albeit gradually in the next three to four quarters.