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Festive sales, pent-up demand to push auto dealers' volumes up in FY22: CRISIL

However, a possible third wave of Covid-19, spurt in fuel prices and supply constraints of OEMs are seen among factors that could slow down the sector.

Festive sales, pent-up demand to push  auto dealers’ volumes up in FY22: CRISIL

Festive sales, pent-up demand to push auto dealers’ volumes up in FY22: CRISIL

Festive season sales and pent-up demand along with new launches are expected to push automobile dealers' volumes up by 10-15 per cent in FY22, even as they see a patchy recovery this fiscal, says a survey by CRISIL.

However, a possible third wave of Covid-19, spurt in fuel prices and supply constraints of original equipment manufacturers (OEMs) are seen among factors that could slow the sector down, CRISIL said on Monday.

Also, the performance of the automobile dealers varies sharply from region to region with the dealerships in north India being impacted the most, it said. "Dealers of two-wheelers, passenger vehicles and commercial vehicles expect sales to increase 10-15 per cent this fiscal on a low base of last fiscal, driven by new model launches, pent-up demand, and festive season sales," the survey revealed.

The survey carried over 123 dealers of two-wheelers, and passenger and commercial vehicles with a fair mix across regions and OEMs and was aimed at gauging dealer sentiment and expectations and drawing a comparison with the findings of the poll conducted in previous year, CRISIL said.

"Last fiscal did see a demand uptick during the festival season, but it did not sustain. Two-wheeler dealers were the most impacted. This fiscal, too, sales across segments are yet to reach pre-pandemic levels. Also, the deal conversion cycle has doubled, with customers deferring purchase decisions. While sentiment is positive among dealers, the risk of a third wave during the upcoming festive season is a key concern," says Bhushan Parekh, Director, CRISIL.

Similar to the last fiscal, regional performance is expected to show sharp variation, the survey revealed. While most passenger and commercial vehicle dealers expect sales to improve across regions, 44 per cent of passenger vehicle dealers in the north and 40 per cent of commercial vehicle dealers in the south expect a decline. Last fiscal, as many as 45 per cent of the commercial vehicle dealers surveyed in the north and 67 per cent in the west witnessed over 20 per cent year-on-year (YoY) decline in sales.

Overall, two-wheeler dealers are optimistic about sales this fiscal, CRISIL said. At the same time, dealers in the east and west expect higher sales, while 33 per cent in the north and 20 per cent in the south are not as hopeful. Last fiscal, around 60 per cent of the two-wheeler dealers surveyed in the north and south reported over 20 per cent YoY decline in sales, according to the ratings agency.

"Low inventory levels will help in quicker recovery and also reduce holding costs. About 75 per cent of the surveyed dealers reported vehicle inventory of less than 45 days due to better management. Indeed, while lockdowns started in April this fiscal, they had liquidated inventory in March," said Says MubasshirBakir, Associate Director, CRISIL.

Added to this, staff rationalisation and cost control measures initiated last fiscal have softened the impact on dealers' financials. Majority of the survey respondents do not expect any material retrenchment or attrition of staff, or dealership exits this fiscal, he said.

Though the government did not introduce specific measures for the auto industry's revival in the Union Budget 2021-22, it recognised auto dealerships as micro, small and medium enterprises (MSMEs). Since then, a large number of commercial and passenger vehicle dealers surveyed have registered themselves as MSMEs, though two-wheeler dealers are yet to do so, according to CRISIL.This could be because many dealers are not fully aware of the credit schemes available for MSMEs and have only availed of moratorium extension until now, it stated.

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