Automobile dealers’ body FADA on Tuesday expressed concern that the chip shortage issue could derail passenger vehicle (PV) retail sales during the festive season, as automakers are struggling with an adequate supply of vehicles to dealers due to production challenges.

Terming semiconductor shortage as a “full-blown crisis”, the industry body warned of a lacklustre festive season, especially for the passenger vehicle dealer fraternity, with low inventory levels and non-availability of the fast-moving model variants ahead of the peak festive period.

 

Insufficient supply

“Auto dealers are facing the most challenging phase of their business career as Covid-19 after-effect continues to play spoil-sport. Until last year, when demand was a challenge, supply is becoming a bigger problem currently due to shortage of semiconductors, even though there is high demand for passenger vehicles,” FADA President Vinkesh Gulati said in a statement.

Every dealer by now starts planning for a bigger offtake in anticipation of a bumper festive season, but due to supply issues, inventory levels are at the lowest levels during this financial year, he added.

“With OEMs drastically cutting down production due to unavailability of semiconductors and ABS chips, shortage of containers and high metal prices, customers for the first time may not get a vehicle of their choice and lucrative schemes during this festive season. The ultra-frequent price increase is also keeping entry-level buyers at bay,” Gulati noted.

He added that customers especially at the bottom of the pyramid were trying to save instead of buying articles like two-wheelers.

“This will hence keep demand for two-wheelers a concern. Though, with educational institutions slowly opening up, a ray of hope can be seen for an improved demand in coming months,” Gulati said.

FADA thus sees that the near term outlook will continue to remain a mixed bag with PVs witnessing demand-supply mismatch and two-wheeler segment facing a demand crunch, he noted.

Average inventory at the end of July for passenger vehicles stood between 25-30 days, while in the two-wheeler space it ranged between 20-25 days, Gulati said.

Semiconductor requirement

The usage of semiconductors in the auto industry has gone up globally in recent times, with technological advancements and new models coming with more and more electronic features such as Bluetooth connectivity and driver-assist, navigation and hybrid-electric systems besides the engine control unit.

However, the auto industry accounts for about 10 per cent of the overall semiconductor demand, with the rest coming from the electronic appliances and gadget industry, such as mobile phones and laptops, among others.

PV retail sales

FADA on Tuesday reported a 39 per cent year-on-year rise in passenger vehicle retail sales in August to 2,53,363 units.

According to the Federation of Automobile Dealers Associations (FADA), PV sales stood at 1,82,651 units in August 2020.

Similarly, two-wheeler sales rose 7 per cent to 9,76,051 units last month, as compared to 9,15,126 units in the year-ago period.

Gulati noted that the two-wheeler market, which is highly price-sensitive, continues to remain subdued with multiple price hikes by OEMs and an increase in fuel cost.

“Customers continued to fight financial battles due to Covid related health issues and hence remained away from dealerships resulting in low enquiry and lower sales. This has its impact on the entry-level segment which continues to face the biggest brunt,” he said.

Commercial vehicle sales surged 97 per cent to 53,150 units against 26,851 units in August last year.

“While SCV’s had already shown good recovery due to intra-city goods movement, M&HCVs are picking up pace only in specific geographies where the government is rolling out infrastructure projects. Acquisition cost post-BS-6 implementation along with financers keeping away from the segment and high fuel cost continues to restrict recovery in CV demand,” Gulati said.

Three-wheeler sales saw a rise of 80 per cent to 30,410 units last month from 16,923 units in the same period last year.

The total sales across categories increased by 14 per cent to 13,84,711 units in August as against 12,09,550 units a year ago.

FADA represents over 15,000 automobile dealers having 26,500 dealerships across the country.

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