For nearly two years now, the Indian automobile industry has been in a slump. However, the recently released estimates by the Society of Indian Automobile Manufacturers (SIAM) indicate a favourable turn of events for the car dealers with the festive demand.
In September alone, automakers experienced better sales than in the last two years. Gross sales for passenger automobiles improved 26% from the previous year. Now as the festive season unfolds with Diwali nearly in tow, the demand for compact and utility cars has already upturned in various urban and semi-urban sectors.
Besides, car dealerships can leverage the reduced interest rates to keep the operations optimal. Dealers can harness external finance to keep up the inventory in typical festive season fashion, ahead of the seasonal demand upsurge.
Recovery in demand
As fears over safety in public transits increase, shift to personal mobility has become a common market sentiment. Given the mobility situation, demand for low-end cars will likely increase in the near terms. Besides, many have already switched to private vehicles with small car purchases, while others are planning to make a move soon.
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Especially in the urban sectors, the recent increase in retail sales slowly enhanced buyer confidence. As a result, automakers will more likely witness demand upsurge for affordable variants, which will presumably continue into January 2021. Furthermore, since the reach of COVID-19 in rural areas was comparatively slow, recovery in rural demand came easier.
However, while festive demand will offer temporary relief to car dealers, a full revival may not transpire until next year; hopefully, with a decline in the number of coronavirus infections.
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Reduction in the interest rates
Auto interest rates are currently the lowest in over a decade, thanks to government interventions. Particularly in the affordable variants, the market for used cars has shown significant promise since used cars are typically cheaper than brand new cars, the EMI commitments are reduced significantly. However, finance may be difficult to procure as only a few lenders offer credit for pre-owned cars.
Nonetheless, the decrease in interest rates may encourage prospective buyers to finalise postponed car purchases. Not to mention, RBI has reduced the repo rate in efforts to revive the economy, which in effect has significantly cut down the MCLR rates. Consequently, there is a reduction in credit risk as well, which allows more lenders to offer auto finance readily.
The bottom line
Dealers should expect buoyancy in retail sales in the last quarter of the FY. However, notwithstanding the current rise in domestic sales, the sustainability of the market demand is directly bound by the COVID-19 scenario. More reason why dealers should capitalise on the festive demand and stock up accordingly.
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