Why is it that you are so cautious about further recovery in auto sales?
76% of the auto retail comes from the two-wheeler category and that is where the major distress is. Whatever story we are listening to, the economy at the rural or lower or lower-middle-class level is still struggling. That is where the major distress is. 14% of the two-wheeler market is down and 14% is a really big number, it is around 2 lakh vehicles. That takes the overall industry down and that is where we are cautious. Another point to be cautious about is how external forces are affecting the supply chain in India. The supply chain lacks consistency. We are not seeing any positive signs on the lower level or the rural market, where FADA is cautious on its near-term outlook.
If you have to pin down reasons why we are seeing a slowdown in Motown besides PV and tractor sales, would it be the semiconductor chip shortage, the spike in raw material costs or has the consumer sentiment been taking a back seat because the consumer out there is getting hit by inflation?
In the passenger vehicle category, there is still a long waiting period. Customers are waiting and because of the hype of new model launches that is one category where we are not disturbed despite the inflation and even today’s message that RBI may increase the rates also. The category is insulated for at least another six months. The semiconductor issue is not allowing an increase in production, but the demand is there. There is a waiting period but the situation is similar in the premium class of two-wheelers which are above 150cc category. But most of the distress is in the below 150 cc catrgory.
The rural economy no doubt has improved, and the monsoon has been good but still, the fear of Covid is there and the rural people are not out of the woods. They are still very sceptical about investing their savings in things like vehicles or consumer durables. They are still very distressed because of whatever has happened in the last two years. Their purchasing power is increasing but they are not utilising it as they want to save it for future problems. The people of lower-middle-class level, their jobs are slowly improving but still not to the pre-Covid level. The salaries had not increased for the past two years and are seeing a good jump this year. But the regular growth which would have been achieved without Covid is no way near. So, there is a lot of distress on ground zero because of which customers are not coming out to buy entry-level cars or two-wheelers and that is a major concern.
The government has also cut the excise duty on fuel prices to a certain extent which will alleviate pressures. How much of a positive rub-off do you expect on the two-wheeler space in particular?
What happens positive rub off on this should always be seen and it normally is there in the market. Also the spike in insurance premium on two-wheelers is a negative rub-off. The problem is we are not able to get a normal month. If we compare it to April. In April two-wheeler space was down by around 10.75% compared to 2019 but, in May it increased to 13.91%, which shows that while the fuel price cut should have been a positive rub-off, other external reasons are giving a negative rub off.
In May’s first week, we saw the rate of interest going up, then at the end of May, the insurance prices went up and the acquisition price of two-wheelers has gone up by 30%. So overall, no doubt the fuel price going down has supported a bit, but it is not showing its effect on the ground due to other reasons.
How much of a deterrent will be the increase in third-party insurance premium?
For two-wheelers, the price increase is around 3-4%, because of the third-party insurance premium and whenever the price increases, the customers who are already in touch with the dealership tend to delay their decision. Some may also cancel their decision because their budget goes way above what they had planned. However, for a short period, we see a lull and again after 15 days, the prices stabilise, and the customers come in again. So, May was the month where this increase had an effect. If this was not there, around 5% of the market would have been better off if the increase was not announced or implemented.