India's auto sector retail off-take might just come to a screeching halt as COVID-induced economic contraction hits the brake on showroom sales.
Accordingly, the auto sector is bracing for the mega impact with estimates ranging from 25%-45% deceleration in retail sales in a few segments on a year-on-year (y-o-y) basis for FY20-21.
In fact, the same contraction rate can be expected in wholesales as "stocking activity is currently taking place at dealership level in tune with retail numbers" said Federation of Automobile Dealers Associations' president Ashish Harsharaj Kale.
Even though just an estimate, the forecast is in part co-related to the prediction of an overall dip in India's GDP growth rate.
National and international monetary agencies have cited a range of negative 4.5% to 5% contraction in India's GDP growth rate.
"If the projected economic contraction holds true, it would surely hit the sectors that depend on discretionary spending," Mr Kale said.
"The retail sales will vary from segment to segment but at an overall aggregate level it is expected to fall by 25%-45% across various segments with CV being the worst hit. This fall might also be mitigated by factors such as healthy pick up in rural demand and complete restart of the OEM operations soon."
According to Kale, there has been a slow pickup in sales during June and even supply side is not fully restored. However, he is hopeful of further government support to prop-up the economy and the sector.
"We expect a good pick up by September onwards during the festive season. By that time, hopefully, the complete supply chain will also be restored," Kale said.
"We will also be able to see the positive impact of various schemes under government's stimulus programme, especially in the rural areas."
Besides, Kale pointed out that off-take in rural areas has shown rapid improvement and demand there should bounce back sooner than expected.
"Motorcycle, tractor and small commercial vehicle segment have shown positive movement," he said.
"The bounce back in sales is first expected to take place in rural areas. A good crop last season and expectations of a healthy monsoon and other factors support this prediction."
As per FADA, nearly 85% of all dealerships are operational across the country now.
The Association represents over 15,000 automobile dealers having 25,000 dealerships, accounting for 90% of automobile sales and service in India.
Its members employ over 40 lakh employees in the country at dealerships and service centres with 25 lakh direct employees and another 15 lakh indirect depends.
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