FADA changes vehicle sales outlook to 'negative' amid Russia-Ukraine war

Domestic passenger vehicle sales fell nearly 8% in February as automakers continued to reel under the global chip shortage.

Sales of passenger vehicle (PV) sales slumped 7.84% year-on-year to 2,38,096 units in February compared with 2,58,337 units in the year-ago period, according to the Federation of Automobile Dealers Associations (FADA).

The automobile dealers' body also changed its outlook on retail vehicle sales from 'neutral' to 'negative' till the time Russia-Ukraine war doesn't come to an end. FADA warned that the ongoing Russia-Ukraine war brings a new set of challenges for Indian automakers as raw materials for semiconductor will disrupt supplies and crude breaching the $110 mark will hit customer sentiment.

Russia is one of the largest producers of rare-earth metals especially Palladium, which is an essential metal for semiconductors. Ukraine on the other hand is one of the biggest producers and exporters of Neon gas, which is used in the manufacturing of semiconductors.

"Due the ongoing war, we once again fear the shortage in semiconductors which will create additional supply side issues for PVs," says FADA President Vinkesh Gulati.

With Brent crude prices breaching the $110 mark, the government will not be able to hold prices of petroleum products for long, cautions FADA. "Post state election results, oil marketing companies will increase fuel prices by at least ₹10-15."

Even though the PV segment saw some launches and slight respite in supply due to better production, it was not enough to meet customer demand, says Gulati, adding that vehicle waiting period remains similar to what it was in the last few months.

Sales of two-wheelers declined 10.67% year-on-year to 9,83,358 units last month compared with 11,00,754 units in February 2021.

The two-wheeler segment is showing no signs of recovery as Bharat continues to play spoil-sport, says Gulati. "With cost of acquisition continuously going north, the inquiry level remained weak. As corporates and educational institutions continued operating from home, urban demand also took a hit."

Tractor sales plummeted 18.87% year-on-year to 50,304 units in February 2022.

Meanwhile, commercial vehicle sales bucked the trend, clocking a jump of 7.41% to 63,797 units in February 2022 compared with 59,395 units in the corresponding period last year.

"While commercial vehicles are not at similar levels when compared to pre-Covid months, slight recovery on yearly basis was visible majorly due to low base effect. This coupled with increase in government's infrastructure spending saw continued traction in HCV and Tipper segments. Fleet operators who were earlier being missed have slowly started purchasing vehicles," says Gulati.

The Indian auto industry continued to remain in the red as overall vehicle retail sales fell 9.21% year-on-year in February 2022.

With the Omicron wave passing away without much impact and supplies showing signs of recovery, it looked as if the Indian auto industry was at the cusp of recovery until Russia invaded Ukraine.

The industry lobby, however, adds as educational institutions and offices are now fully open and Gudi Padwa is round the corner, the sector may see some increased interest in the two-wheeler segment as well as the bus segment (which has witnessed a long dry spell of almost two years).