Anticipation of the third wave of Covid-19 cast a shadow on the auto sector as fear surrounds consumer decisions.
Covid-19 has shattered almost every sector up to the core, and the automotive sector is not an exception. The first lockdown of Covid-19 last year subdued the demand in the auto industry but rose at a brisk pace after the lockdown. The demand grew due to low interest rates, higher government spending, an unusual shift from shared to personal mobility and sharp rural recovery.
However, there are some opinions that the same state of affairs would not repeat in the coming months, as people have low confidence with the level of health infrastructure and slow vaccination drawing the third wave closer. Let’s see how far the third wave of Covid-19 would impact the auto sector around the festive season of Diwali.
Lesser savings due to spread of Covid-19 to non-metro cities
The Covid-19 spread into the tier-2 and non-metro cities at unprecedented levels have resulted in lesser savings in these regions. It could impact the sales volume of entry-level cars priced up to INR 4 lakhs and two-wheelers to a large extent. However, this state of affairs will not have much effect on the four-wheelers priced above INR 6 lakh, as people interested in this segment will continue to utilize their saved cash. While it’s normal that people started to travel after the lifting of previous lockdowns, there could be a major economic impact around the third wave that would eventually affect the sales near the festive season.
Slow vaccination process when we look at our population
Many companies have already predicted that the auto industry would take up to 2 years to bounce back to the pre-pandemic levels. And the slow pace of vaccination could further aggravate the situation and hurt recovery prospects. The fear of the next wave will continue to haunt consumer sentiments, and discretionary spending could take longer to recover from the slump. So, getting back to the pre-pandemic levels will depend majorly on vaccinations, else the next wave predicted around the festive season could disrupt things again. No doubt, looking at the global vaccination data, India is doing a good job, but still, to achieve a deserving vaccination level, a humungous leap in vaccination is required.
Slow demand from rural areas
Though with easy availability of finance options and new products may encourage the first-time buyers to look for an upgrade, the rural areas which were badly hit in the second wave might not be ready enough to open their lockers. Sales, especially of the two-wheelers, will have a negative impact in the rural areas due to increased healthcare spending during the second wave. Talking about numbers, the pre-covid contribution of rural sector towards auto sales was around 60 per cent, which is now down to 50 per cent. This suppressed demand is expected to continue until August-September 2021, which would impact the festive sales to some extent.
June-July stats have brought some relief in the auto sector as nearly all companies have posted healthy growth. However, the month of August-September will clear the picture further as to what impact the third wave of Covid-19 could have around the festive season.