India’s motown is showing signs of recovery with retail sales going up during the festive season. However, for the auto industry in general, it is still early days, and the recent spurt in sales may not reveal the full story. Traditionally, the industry has always been optimistic around the 10-day Navratri festival sales, and this year, despite the Covid-19 pandemic, it is proving to be no different. After months of negligible sales, car companies are finally leveraging pent-up demand and showing signs of positive growth for the forthcoming months. According to data released by the Federation of Automobile Dealers Association (FADA), overall vehicle registrations in September grew by 14%, as compared to the previous month.

Carmakers are seeing a double digit growth during this festive period. Country’s largest carmaker, Maruti Suzuki has delivered 95,000 cars during this period—recording its season-best performance in the last four to five years. The Japanese automaker offered discounts ranging from ₹5000 to ₹53,000 across variants such as Alto, Wagon R, Celerio, Eeco, S-Presso, Swift, Dzire, Vitara Brezza, and Ertiga.

Tata Motors, too, recorded 103% growth in passenger vehicle (PV) booking and 90% growth in PV retail during this year’s Navratri, as compared to the same period last year. The company offered discounts of up to ₹65,000 on variants like Harrier, Nexon, Tiago, and Tigor, and has also tied up with HDFC Bank to roll out finance offers for its PV customers. Other carmakers like Honda has rolled out offers and discounts of up to ₹2.5 lakh, while Hyundai had benefits of up to ₹1 lakh on its select models on offer.

“The domestic PV industry is on a recovery path and healthy volume growth, in September 2020 as well as during Navratri days, reflects the same. Discount level has also eased across OEMs, indicating enquiries as well as conversion has improved, especially in the entry level and compact UV segment,” says Ashish Modani, vice president, ICRA, a full-service credit ratings agency.

Industry experts say that some of the main reasons behind this uptick is pent-up demand, festive discounts by companies, and a growing inclination towards personal mobility as people are now wary of using public transport due to fear of catching Covid-19, in both urban and rural markets. “Recovery in rural demand, as well as pent-up demand, are the key drivers, and the momentum is likely to sustain in November 2020 as well,” Modani adds.

Mercedes-Benz too said that the ongoing festive season has seen healthy sales and delivered 550 cars to its customers across the country. According to the company, the sales figures during Navratri and Dussehra are similar to those achieved during the same period last year, coming from its key markets in Delhi-NCR, Mumbai, and Gujarat.

“The festive season this year has begun on a very strong note and Mercedes-Benz India is glad to witness this positive customer sentiment. The company is delighted to share the unlocking of the aspirations and celebrations by its customers who drove home a Mercedes this festive season,” said Martin Schwenk, managing director & CEO, Mercedes-Benz India. The company’s C-Class, E-Class sedans, and the GLC, GLE, and GLS SUVs are in particular demand during this year’s festive season.

Struggling Two-Wheeler Segment

However, the looming question still remains whether this in any way indicates a long-term growth trajectory for the ailing auto industry.

Industry body, Society of Indian Automobile Manufacturers (SIAM), believes that automobile sales across segments are expected to fall in the range of 25-45% in FY21. More than 300 dealerships across the country have already been closed in the last two years of slowdown.

Although, four-wheeler sales have temporarily picked up during the festive season, the two-wheeler segment saw little to zero growth. Experts reason that this could be due to various factors, such as fewer launches, job losses, slowing rural demand, less economic activity, and an overall slowdown in the economy. Last year, too, the industry followed a similar trend. During the festive season, the passenger vehicle segment grew by 0.28%, while the two-wheeler segment fell 14.43% in October 2019.

“The key concern for the automobile industry during the festive season is the two-wheeler segment, which seems to be struggling a bit, especially the commuter segment, which we feel will take time to revive and might not showcase similar numbers as the PV segment. Had it been a normal condition every dealer and OEM would have initiated some marketing and promotional activities at least two-three months in advance, which would have definitely added significant numbers to pre-booking and inquiries, which could not happen this time due to these unprecedented conditions,” says Vinkesh Gulati, president, FADA.

FADA, as per its recent estimates, expects the two-wheeler segment to actually see a double digit decline in the October month, on a year-on-year basis.

Gulati added that it will be too early to comment on the full festive demand as the reasons behind the present spurt in PV sales are myriad. According to him, presence of rural demand has translated into good sales for small cars. On the other hand, a slew of new high-profile car launches has contributed to a growth in demand from the urban areas.

As for the two-wheeler segment, Gulati feels demand will pick up when the situation normalises. “The rural demand has been there, but the major effect on the segment is because of urban India, and also the schools and colleges which are still running from home. Once both schools/colleges, and offices, are back to normal operations, we feel the two-wheeler segment will witness a significant push,” he said.

There is worry in the market also about the scenario once the festive season recedes. Analysts say that even though there has been an uptick in demand this month, it might not be sustainable for the long haul as the industry needs economic catalysts after the festive period to sustain the buoyancy, especially for the urban markets. The auto industry is also plagued by rising commodity costs. In the second quarter of FY21, for instance, Nomura’s commodity cost index rose by 150 basis points, quarter-on-quarter. It is expected that these rising commodity costs might propel automakers to go for a price hike, which, experts fear might hinder the industry's growth curve.

Follow us on Facebook, Twitter, YouTube & Instagram to never miss an update from Fortune India. To buy a copy, visit Amazon.