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Is a rise in auto sales and demand a sign of economic growth?

Automobile demand and production across personal mobility and goods movement is a sign of the country’s economic growth. 

Mint explains some exciting trends and points out potential risks according to wholesale auto data for February. 

February numbers for auto sales

OEMs dispatched wholesale passenger cars in sustained volumes in February. 

However, two-wheeler production saw a dip of 27% y-o-y, while truck dispatches grew across segments — medium, light, and heavy. 

Furthermore, due to a high base effect from February 2021, tractor sales faced heavy pressure. 

Additionally, the growing EV market witnessed a multi-fold rise in sales in February. 

OEMs exports are primarily in the favourable terrain, except for some automakers. 

How are auto sales linked to economic growth?

The uninspired demand for entry-level cars and two-wheelers came from rural stress and low-income customers. 

Furthermore, the high acquisition cost came from increased raw material costs, fuel prices, and sticker prices of two-wheelers. 

Compared to January 2021, entry-level passenger car prices rose to 10%, causing customers to be cautious. 

Moreover, the demand for mini-cars dipped nearly 18% y-o-y. 

What are the potential risks for auto sales?

While rising fuel and vehicle prices fall under the potential risk category, manufacturers expect demand to rebound in the next fiscal year. 

Furthermore, the demand for two-wheelers could rise due to the reopening of educational institutions and private offices. 

Moreover, the rise in e-commerce demand and infrastructure push could raise the demand for commercial vehicles. 

Auto-sales may remain constant as the shortage of semiconductors continue. 

Semiconductor shortage and the Ukraine crisis may disrupt supply chains

While various industries show improvement in auto production, OEMs say the challenge would continue for a few months. 

The semiconductor shortage has impacted high-end sales of bikes and scooters of Royal Enfield and TVS Motor Co. 

Nevertheless, while India’s largest carmaker Maruti Suzuki India Ltd, reported month-on-month improvement, they cannot achieve total production capacity. 

However, as alternative chip sources kicked in, Mahindra & Mahindra Ltd and Tata Motors Ltd ramped up production. 

Additionally, Icra Ltd says Russia and Ukraine are vital raw materials suppliers. In the event of a war, the semiconductor shortage could rise. 

Furthermore, two-wheeler demands could dip further as oil prices have crossed $100/barrel. 

Lastly, 

As various global factors affect auto demand and sales, the industry has witnessed a significant rise in sales. 

Furthermore, as the pandemic and the Russian-Ukraine crisis affects the global economy, the semiconductor shortage may rise. 

Also Read – 1% increase in household spending seen since February

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