Coronavirus second Impact on Auto Industry: latest updates by ICRA

The second wave of Covid-19 has dented the recovery momentum of automobile sector's Original Equipment Manufacturers (OEMs) and auto-ancillaries, said ratings agency ICRA.

"Not only have many auto OEMs and auto ancillaries resorted to plant shutdowns as a restrictive measure, but also automotive dealerships across regions have not been operational in light of regional restrictions imposed by various states and local authorities in order to curb the pandemic," the ratings agency said.

As per an ICRA note, while these trends would cause near-term supply disruptions in the sector, the larger and prolonged impact will be on various demand drivers. Consequently, the ratings agency revised the growth estimates for most of the different automotive segments downwards. According to Shamsher Dewan, Vice President & Group Head, ICRA Ratings, the second wave of the pandemic is expected to impact near-term automobile purchases, across segments.

Unlike the first wave, where infections were largely localised to urban clusters, the second wave has seen deeper and wider penetration, including into rural hinterlands." "Additionally, the significant medical spends have eroded the purchasing power of individuals and families to a greater extent, which would impact large ticket discretionary purchases like vehicles, at least over the near term." Besides, the agency cited that within the industry, two-wheeler segment is expected to be the most impacted, with the target consumer group's affordability and demand sentiment sharply hit by the second wave.

Accordingly, domestic two-wheeler volumes in FY2022 are expected to grow by 10-12 percent now as against 16-18 percent earlier. Furthermore, the domestic passenger vehicle (PV) segment would also see a softening of demand due to the spread of pandemic to hinterlands, hit on disposable income and rising vehicle costs and will see a lower growth of 17-20 percent now as against 22-25 percent expected earlier.

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