Auto sales unlikely to reverse course in a hurry

The extended nationwide lockdown to contain the Covid-19 pandemic has brought the automobile industry to a standstill. Automobile manufacturers and dealers, who were grappling with weak demand and liquidation of Bharat Stage (BS)-IV inventory ahead of the shift to BS-VI, are now left wringing hands.

The Ministry of Home Affairs in a notification on April 15 allowed resumption of several activities from April 20, albeit by strictly adhering to social distancing norms. This covers manufacturing in industrial units, including automobile factories, under the purview of state/ district administration.

However, operations of automobile dealerships will be difficult until May 3, and some even after. That means, even if manufacturing units start functioning, vehicle sales will not happen until that date.

In addition, the central government has directed state/ district administrations to calibrate the revocation of lockdown after demarcating districts as red (hotspots with high infection) and green (non-infected) zones. This implies that the sales outlets in red zones are likely to remain shut even if the lockdown is lifted after May 3.

Against this backdrop, CRISIL Research has assessed the risk the two-wheeler and passenger vehicle industries face based on a two-factor framework – district-wise automobile sales concentration and the risk of spread of Covid-19.

For the analysis of automobile sales, we considered sales intensity and growth momentum in the districts, and for analysing the Covid-19 spread risk, the present case intensity, and risks to spread. In short, if a district that accounts for high sales of two-wheelers or passenger vehicles is also impacted severely by the pandemic, it poses a higher risk to overall industry sales.