Rural auto demand could pick up during festive season, but overall revival may take at least 2 years: FADA

The automotive industry serves as a significant barometer of a country's economic trajectory. The sales figures in the entry-level segments of both two-wheeler and four-wheeler markets have experienced a considerable dip, registering a nearly 25 per cent decline compared to pre-COVID levels.

According to the Federation of Automobile Dealers Associations (FADA), even in the midst of a lackluster performance in the rural market throughout the previous year, the festive season saw a surge in demand. This surge was driven by the belief among customers that the period from September to November holds great auspiciousness for purchasing new vehicles.

Similarly, FADA's president, Manish Raj Singhania, anticipates an overall market resurgence this year, echoing the rural market's propensity to rebound during the festive season. Singhania expressed confidence that rural markets will outperform last year, albeit still falling short of pre-COVID benchmarks. He remarked, "Compared to the pre-COVID era, there's a definite decline, but we are optimistic that the festive season will yield positive results."

Notably, last year was marked by a scarcity of parts and supply chain disruptions, resulting in the absence of promotional schemes and discounts. Singhania indicated a significant improvement this year, as many companies have streamlined their supply chains and ramped up production.

Dealers are now stockpiling inventory, which is expected to translate into increased consumer incentives and discounts, especially in rural areas. Singhania emphasized the need to maintain liquidity in the market. However, Singhania cautioned that the medium-term outlook for the entry-level segment remains lackluster. He attributed this situation, in part, to unexpected rainfall patterns in August, which may further delay the recovery of the rural market, potentially extending the timeline to up to two years.

Singhania also noted that the auto industry faced a double challenge, first with the impact of COVID and then with the transition from BS-IV to BS-VI emission norms. This transition led to a substantial increase in the cost of entry-level two-wheelers, with prices soaring from Rs 38-39,000 to Rs 60,000. Similarly, models like the Alto, which previously cost around Rs 1.82 lakh, now command a price of Rs 3.5 lakh, representing a significant cost escalation.

While premium cars and motorcycles are experiencing record-high sales, the entry-level retail sector, which previously relied on rural markets for 70 per cent of its sales, is yet to witness a revival. Singhania proposed a potential solution to stimulate rural demand: reducing the Goods and Services Tax (GST) on entry-level two-wheelers.

He argued, "Compared to pre-COVID levels, entry-level sales are down by around 24 per cent, a substantial figure. It's as if a quarter of the market has vanished. Mobility is a crucial aspect of life in India, particularly in rural areas, where personally-owned vehicles are indispensable. Despite the heavy taxation burden on the auto industry, which includes taxes reaching 48-49 per cent, plus an additional 10 per cent road tax on average, we are advocating for a tax reduction specifically in the entry-level segment. This would make these bikes more affordable for rural customers."

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