Festive Cheer Uplifts India’s Auto Demand

But is too soon to say that the auto industry is seeing signs of revival or is it just limited to the festive season?

Driving demand

Major carmakers in India have witnessed highest ever sales and strong positive growth in the month of October 2020 amid the ongoing festive season.

Two top automakers Hero MotoCorp and Hyundai registered highest ever domestic sales in October. Maruti Suzuki, Tata Motors, Kia also registered robust growth during the month. Mahindra & Mahindra’s (M&M) CEO in a press release said that the festive season has started on a positive note for the company with deliveries and bookings being higher than last year.

As the lockdown restrictions eased, automakers started unveiling new products, started offering discounts ahead of the festive season and easy availability of cheap loans also attracted customers. The rural and urban markets saw a positive sentiment as preference for personal mobility has risen amid pandemic.

The continuity of the positive show from the rural and urban markets could further boost the demand. Many of the auto players may plan to ramp-up production and build inventory at dealerships as there may be expectation for good retail sales during Diwali.

One thing to note is that Automakers in India report dispatches from factories and not actual retail sales to customers. Therefore, the numbers indicate the wholesale figures while retail sector may remain unknown.

Will it sustain?

Taking last year for example, the auto industry wasn’t in a good shape for long and then witnessed a positive demand during festive season after months of decline in sales. However, the industry was cautious if the trend would continue after the festive cheer and the industry was back to registering decline in sales.

This year could again be a déjà vu for the industry with the added burden of the pandemic. Many fear that this may be short-lived and from December-January the industry will start feeling the pressure again for which it will need the government’s support.

One major support being asked by the auto industry and the industry bodies for a long while is the reduction of goods and service tax (GST) rate for the passenger vehicle segment. The cut in rates would help offset the increase in vehicle prices brought on by the transition to BS-VI emission norms, they claim.

In August, the Finance Minister Nirmala Sitharaman was quoted by Confederation of Indian Industry (CII) saying that since two-wheelers are neither a luxury nor a sin product, they merit a rate revision. Consequently, this will be taken up with the GST Council, she said. However, nothing yet has been conveyed for the same.

All in all,
The sustainability of the trend remains in question given the slow signs of economic revival. It all depends on how the post festive demand prospect takes shape.

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