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Supply, not demand to dim festive season fervour for carmakers

Supply, not demand to dim festive season fervour for carmakers

Automakers say reasons like semiconductor chip shortage, rise in input costs, commodity prices becoming more expensive and increasing fuel costs might lead to a dimmed festive season this year

Automakers like Maruti Suzuki, Toyota, Hyundai and Mahindra & Mahindra have already announced that their cars are going to be costlier from next month Automakers like Maruti Suzuki, Toyota, Hyundai and Mahindra & Mahindra have already announced that their cars are going to be costlier from next month

It's that time of the year again. Carmakers-in an expectation of inflated sales-and car buyers-in anticipation of bumper discounts and offers-both eagerly await the festive months between August and November. 

Automakers say that while demand is comparable to pre-COVID levels but reasons like semiconductor chip shortage, rise in input costs, commodity prices becoming more expensive and increasing fuel costs might lead to a dimmed festive season this year. 

The opening up of the economy post the second wave of COVID-19 pandemic has led to a V-shape recovery for the overall passenger vehicle market, and it is the supply and not the demand that is likely to cause longer waiting periods which will, in turn, impact consumer sentiment for months to come, experts say.

Also Read: Hyundai, Honda expect demand to remain strong this festive season
 
Automakers like Maruti Suzuki, Toyota, Hyundai and Mahindra & Mahindra have already announced that their cars are going to be costlier from next month. The country's largest carmaker Maruti Suzuki, in fact, has increased its car prices thrice in this calendar year itself. 

The company says its vehicle sales are 20-22% down from the FY 18-19 levels. According to brokerage firm Emkay Global, passenger vehicle production is likely to be more affected than the production of two-wheelers and commercial vehicles. Experts say that the waiting period for car models are more than two months, and this could even extend up to 7 months for models in demand.
 
"As markets are opening up, the recovery following the second wave has been good showcasing robust demand. While we expect the festive season to be fruitful from a consumer demand perspective, the challenge faced due to the shortage of semiconductors may act as a dampener. Having said that, we are continuously assessing the situation and are working closely with our vendor partners to cater to the demand," says Rajan Amba, Vice-President, Sales, Marketing & Customer Care, Passenger Vehicles Business Unit, Tata Motors.
 
Cars require semiconductor chips to enable functions such as navigation control, Bluetooth connectivity, infotainment systems, collision-detection sensors, etc. 

Also Read: Indian automakers expect better festive season this year amid global chip shortage

In the last few months, the industry has been suffering from a dearth of semiconductor chips. One of the main reasons for this shortage, experts say, is the disruption in the global semiconductor supply chain due to the Covid-19 pandemic, inadequate investments and preparedness, and the rising demand in technologies due to the new work-from-home culture. 

"The semiconductor crisis has impacted production for the industry (passenger vehicle industry in particular) over the past few months, with OEM's curtailing production levels. While channel check indicates that OEMs are taking various measures to circumvent the shortage and thus ramp up production to cater to the festive season demand, some impact of the ongoing shortage in chips on wholesale dispatches is likely to be there. The ability of the OEMs to overcome the shortage would remain key for their fortunes during the upcoming festive season," says Rohan Kanwar Gupta, Vice President & Sector Head, Corporate Ratings, ICRA Limited.
 
The ratings agency says that the festive season is an important part of the fiscal for the automotive OEMs, with consumers generally preferring to make big-ticket purchases on special occasions. 

"This year, as per our channel check, the impact of the festive season across automotive segments is expected to be varied to an extent. Even as demand for the two-wheeler segment is expected to continue to remain subdued, impacted by a sharp rise in ownership cost and moderation in consumer spending power, the demand for the passenger vehicle segment remains robust, with preference for personal mobility, spurring demand over the past few quarters," says Gupta.
 
Gupta adds that while there were concerns regarding the impact of uneven monsoon precipitation on rural cash flows, advance estimates for Kharif production provide optimism; additionally, urban consumer sentiments are also improving on a sequential basis. 

"The commercial vehicle segment has also seen a healthy recovery in demand over the past few months; barring the bus sub-segment, M&HCV and LCV segments have seen improved volumes, aided by continued government push on infrastructure investments and healthy demand from the e-commerce segment respectively. This recovery is expected to continue in the festive season as well," he states.

Also Read: Mercedes-Benz launches low-cost financing festive offers; lucky winner to meet Lewis Hamilton
 

Last year, automakers had witnessed a sharp growth in sales despite the selective opening up of the market. The demand has spiked during the festive season between September and November owing to impressive discounts by automakers like Maruti Suzuki, Hyundai and Tata Motors, and pent-up demand during the lockdown.

According to the industry body Society of Indian Automobile Manufacturers (SIAM), sales in September saw a 26.5% growth in September while they grew by 14.1% in August last year.

"In the past year, post the adverse impact of the pandemic induced lockdowns on demand, the industry had seen relatively healthy sales during the festive season, thereby aiding an improvement in overall volumes," Gupta adds.

Luxury auto players, too, seem to be on the same boat. "We have had good September sales. I would assume that continues. A little bit of concern is that we need to make sure we supply on time. Deliveries later than the festive season don't help my sales numbers this quarter. There are more issues on the supply side. It will have some impact on the quarter which is about to start now. Maybe a car which we wanted to build this week will be built only next month. At a global, there has been a significant shortage," says Martin Schwenk, MD & CEO Mercedes Benz India.
 
Maserati India's head of operation Bojan Jankulovski too echoes the same concern. "With an improved consumer sentiment, we expect the festive season to better that of last year," he notes.