Analysis: Auto sales rise 207% in May 2022 but still lower than pre-Covid levels

The total vehicle categories were in the green in May 2022, increasing by 207%. According to automobile dealers' body FADA, 2W, 3W, PV, tractors, and CV were up by 198%, 696%, 204%, 216%, and 278%, respectively.

However, FADA stated that auto retail has still not recovered from the jitters of COVID. When compared with May 19, total vehicle retail was down by 10%. Except for PV and tractor, which continued to show growth of 11% and 33%, all the other categories like 2W, 3W, and CV fell by 14%, 19%, and 11% respectively.

On Monday, FADA said that overall auto retail stood at 16,46,773 units in May, down from 18,22,900 units in May 2019.

Last month, passenger vehicle (PV) retail sales stood at 2,63,152 units. This was 11 per cent higher compared to 2,36,215 units sold in May 2019.

While two-wheeler sales stood at 12,22,994 units. It was at 4,10,871 units in May last year. In May 2019, the two-wheeler retails stood at 14,20,563 units.

Commercial vehicle sales stood at 66,632 units last month, up from 17,607 units in May last year. It, however, remained low as compared to 75,238 units in May 2019.

Similarly, three-wheeler sales remained muted last month at 41,508 compared with 51,446 units in May 2019. In May last year, the retail sales stood at 5,215 units.

tractor sales were up last month at 52,487 units, from 39,438 units in May 2019.

The data was put together by FADA from the VAHAN platform of the Ministry of Road Transport and Highways (MoRTH). VAHAN captures data from 1,481 out of 1,616 RTOs in the country. FADA said with the Andhra Pradesh Transport Ministry migrating to the VAHAN platform, the data reflects registrations from 91.6% of RTOs in India.

"The government made a bold decision to cut excise duty on fuel prices, thus reducing inflation and economic distress. While this will have a positive rub-off on the sale of vehicles, especially 2W, the increase in 3rd party insurance premium will act as a deterrent for some, "said Vinkesh Gulati, president of the Federation of Automobile Dealers Associations (FADA).

The 2W segment has seen a slight improvement in overall sales when compared with April’22. While 2W EV sales were growing rapidly, albeit, from a low base, various fire incidents across almost all EV brands instilled fear in the customer, coupled with supply chain issues, has decreased 2W EV sales drastically from last month, he added.

"The PV segment, which has already surpassed May 2019 numbers, is witnessing huge demand." Dealers are not able to fulfil the same due to supply-side issues," he said, adding that this has led to an increase in waiting periods ranging from three months to two years.

"Healthy booking and single-digit cancellation show that demand may remain stable even when normal supply resumes in the coming months," Gulati said.

Market Share

In passenger vehicles, Maruti Suzuki held its 42 per cent market share followed by Hyundai Motors with 14.6 per cent, down from 18.7 per cent, and Tata Motors with a share of 13.4 per cent, a rise from 11 per cent in May 2021.

Mahindra and Mahindra led the market for tractors with a 22.79 per cent share.

Tata Motors led the commercial vehicles market in May 2022, with a market share of 41.3 per cent, followed by Mahindra and Mahindra, with a share of 22.1 per cent, and Ashok Leyland, with a share of 15.6 per cent.

Margins may Improve

On May 24, the government imposed a 15% export duty on a range of finished steel products. In other steel categories, an export duty of 15% has also been levied on pig iron. On the raw material side, the Government has increased the export duty by 58% and above Fe grade iron ore fines and lumps from 30% to 50%.

Analysts forecast that this may lead to a recovery in gross margins of automakers, which contracted by over 500 basis points in the past 15 months as prices of raw materials, particularly steel, doubled, ET reported.

Analysts also believe that these duty cuts will aid demand recovery and lower the cost of vehicle ownership going forward.

Every 10% drop in steel prices potentially expands automakers’ margins by 60-200 basis points.

A two-wheeler, a passenger car, and a heavy commercial vehicle, on average, weigh about 110, 800, and 3,000 kg of steel, respectively.

Near Term Outlook

While the Russia – Ukraine war continues to create a demand-supply mismatch thus delaying the availability of PVs, RBI has warned of more inflation as the increase in wholesale prices will get passed on to the end consumers. This will result in a lower disposable income which will ultimately hamper Auto Sales, according to FADA. 

It says “RBI’s observation has come at a time when the WPI Index rose by a record 15.1% in the wake of high commodity prices and the impact of the breakdown in supply chains due to the War and the strict lockdown by China."

FADA hence continues to remain cautious about any further recovery in Auto Sales in the near term.