The Automobile sector is one of the worst-hit due to COVID-19 as it was already facing a downturn through 2019-20. Vehicle sales slumped immediately after the lockdown. The latest data indicates that the registrations improved during the latter half of 2020 but are yet to reach the pre-lockdown levels.
India is the largest manufacturer of two-wheelers & three-wheelers and the fourth largest manufacturer of passenger cars in the world. The Indian automobile industry is an Rs. 8.2 lakh crore industry, whose turnover constitutes 7.1% of GDP. Over the past few years, there has been a steady increase in the manufacture of automobiles including trucks, buses, cars, three/two-wheelers, etc. in the country. However, the sector was witnessing a downturn in 2019 on account of the economic slowdown which in turn was worsened by the COVID-19 pandemic. The lockdown and the overall economic climate further affected this already ailing sector. In this story, we compare the sales of vehicles in 2020 and compare it with that of 2019 to understand the impact of COVID-19. We use two different sets of data points in this story as explained below.
Domestic Sales data of SIAM: Data on domestic sales are released by the Society of Indian Automobile Manufacturers, abbreviated as SIAM. This data is also provided by the government in the Lok Sabha. It has to be noted that the numbers pertaining to domestic sales, as released by SIAM, refer to the number of vehicles that have been dispatched by the manufacturing companies to dealers. This data does not indicate the level of retail sales i.e., vehicles bought by consumers. Further, the months of September to November are considered auspicious for purchasing vehicles on account of festival season. Thus, dealers stock more vehicles during this time of the year.
Vehicle Registrations data on VAHAN: The registration data is readily available in the VAHAN dashboard, maintained by the Ministry of Road Transport & Highways (MoRTH). VAHAN dashboard is a centralized database of vehicles in 33 out of 37 states/UTs which are enrolled in VAHAN 4.0. The figures from Andhra Pradesh, Telangana, Lakshadweep, and Madhya Pradesh are not included here. The figures pertain to that from 1257 RTOs of the total 1464 RTOs in the country. VAHAN data is a more than reliable estimate of the vehicle registrations and hence a good indicator of retail sales, as registration is mandatory after the sale of the vehicle to the consumer.
Two-wheeler sales have gone up in 2020 according to SIAM data
According to data on domestic sales released every month by the Society of Indian Automobile Manufacturers, only the sales of two-wheelers have gone up in 2020 compared to 2019. What it means is that the sales of passenger vehicles, commercial vehicles, and three-wheelers have dropped compared to 2019. The total sales of two-wheelers have increased by nearly 25% whereas the total sales of passenger vehicles dropped by 20%, commercial vehicles by 36%, and three-wheelers by 62% in the year 2020. The increase in the sales of two-wheelers bucking the overall trend could be because of the people’s general preference to travel in private vehicles instead of public transport in the aftermath of COVID-19.
Passenger vehicle sales witnessed a YoY increase since August 2020
Quarterly data reveals that passenger vehicle sales improved in the quarters from July to September, and October to December of 2020, compared to 2019. It is also observed that the sales of passenger vehicles have overtaken the 2019 levels since August 2020. In December 2020, the sales were about 14% higher than in December 2019.
Meanwhile, the sales of commercial vehicles witnessed an improvement in the quarter from October to December of 2020. In the case of two-wheelers, except for a slump in sales in January to March quarter of 2020, the sales increased in all other quarters compared to the same period in 2019. It may be observed that the sales are slowly getting to pre-lockdown levels though the same cannot be said in the case of three-wheelers whose sales have been low all through 2020.
Vehicle registrations not yet back to pre-lockdown levels
Quarterly data on the number of total vehicles registered from the VAHAN website indicates that the number of vehicles getting registered is gradually picking up. The period from January to March 2020 witnessed over 58.3 lakh registrations as compared to over 54.3 lakh in 2019, an increase of 7%. However, in the quarter from April to June, the number dropped down to just over 15.8 lakh registrations since even RTOs were also closed for nearly a month during the lockdown. Since then, there has been a steady rise in vehicle registrations. However, it has not yet reached the pre-lockdown levels. The registrations from October to December 2020 were more than 10% less than during the same period in 2019.
For the first time in 2020-21, vehicle registrations saw an YoY increase in December 2020
Monthly data indicates that since April 2020, vehicle registrations crossed 2019 levels only in December. December 2020 witnessed about 11.3% more registrations than December 2019. According to the Federation of Automobiles Dealers Association (FADA), this growth can be attributed to good crop season, better offers in two-wheeler segments, new launches in passenger vehicles and two-wheelers, and a fear of price hike from January 2021. Registration data released by FADA shows a year-on-year (YoY) increase in December 2020 when two-wheeler registrations went up by nearly 12%, passenger vehicles by 24%, and tractor sales by over 35%. As previously mentioned in an article by Factly, sales of tractors witnessed a consistent and positive growth since July 2020. This could be because of increased agricultural activity due to good monsoon and reverse migration due to lockdown. The Indian tractor industry is the largest in the world, accounting for a third of the global production.
Parliament Standing Committee on Commerce submitted a report in December 2020
A parliamentary standing committee on commerce submitted a report on Downturn in Automobile Sector- Its Impact and Measures for Revival in December 2020. According to the report, sales have been declining for one and half years before the lockdown which forced major manufacturers to cut production. Further, the continuous decline in sales put pressure on the manufacturers to reduce manpower as per the committee report. The automobile sector associations estimated a job loss of over 3 lakh jobs. New hiring in the sector was also stopped as per the observations made in this report.
Lockdown resulted in almost Rs. 2300 crore loss per day
Following the total shutdown of automobile manufacturing plants during the lockdown, the sector faced an approximate loss of Rs. 2300 crore per day. The report predicts that the sector will likely go through two years of severe contraction.
To deal with the impact due to the pandemic & help revive the sector, the committee has made a slew of recommendations.
- Issuance of guidelines and SOPs by the government for stakeholders to follow and track employee’s health status, safety, provision of quarantine facility, etc.
- The government should work on a stimulus package that would boost demand. The current package caters to boosting the supply side, according to the committee.
- Measures to help the sector financially such as considering payments made to temporary and contract labour during lockdown period as CSR, doing away with conditions to avail Input Tax Credit till the situation returns to normal, fast track approvals or self-certification for meeting regulatory requirements, tax exemptions, etc.
- Ensure availability of finance through easy vehicle loans and low interests as more people shift to private vehicles for transportation due to COVID-19.
- Encourage setting up of new component manufacturing units/MSMEs so as to reduce dependence on China and other countries.
- Capture the manufacturing units being pulled out of China.
- Make land and labour laws investor-friendly.
Apart from the COVID-19 related recovery measures, the committee has also made other recommendations to boost the sector. These include easier availability of loans to buyers, promotion of exports, encouraging electric mobility, improved public transportation, and reduction in GST. Further, the committee felt that a uniform tax structure throughout the country, coverage of insurance expenses through loans will be beneficial for people.
