RBI rate hike to hit auto sector: FADA

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SME Times News Bureau | 05 May, 2022
The automobile industry is still not out of the woods and the Reserve Bank of India's (RBI) move to increase the repo-rate by 45 basis points will make vehicle loans expensive, said a top official of the Federation of Automobile Dealers Association (FADA).

Comparing the auto sales in April 2022 with that of April 2019 FADA President Vinkesh Gulati said the sector is still not out of the woods as overall retails were down by minus six per cent.

Apart from PV (passenger vehicle) and tractors which grew handsomely by 12 per cent and 30 per cent, two/three wheelers, commercial vehicles are yet to turn green as these categories were down by minus-11 per cent, 13 per cent and 0.5 per cent, respectively, Gulati said.

"The month of April (2022) saw similar Auto Retail figures as March'22. While YoY comparison with April'21 shows all categories in green with high growth rate, it is important to note that both April'21 and April'20 were affected by nation-wide lockdown due to phase 1 and 2 of the Covid wave which witnessed no to negligible business. Hence a better comparison will be with Aprila�19 which was a normal pre-covid month," Gulati said.

He said the RBI's out of turn announcement of increasing repo-rate by 45 bps has taken everyone off-guard.

"The move will curb excess liquidity in the system and will make auto loans expensive," he added.

While the passenger vehicle segment may be able to absorb this shock due to long waiting periods, the two wheeler segment is already reeling due to an underperforming rural market, vehicle price hikes and high fuel costs.

High interest rates for vehicle loan due to RBI's move will be an additional blow for this segment. Certainly, this move will slow the speed of auto retail and dampen the sentiments further, Gulati said.

On the other hand, Private consumption is regaining traction backed by a recuperating contact-intensive services and rising discretionary spending.

"With the Russia-Ukraine war continuing and China under lockdown, the global auto industry continues to witness supply crunch as semi-conductor shortage along with high metal prices and container shortage prevails. Customers of the PV segment hence continues to witness long waiting period," Gulati said.

Referring to the Skymet's normal monsoon forecast and if the monsoon is evenly distributed there will have a positive rub-off on rural sentiment as farmers will be able to get better crop realisation thus increasing their disposable income.

It will thus benefit tractor and two wheeler sales. This along with the marriage season in coming days will also see traction in auto retail.

Overall, FADA changes its stance from extremely cautious to cautious in terms of slight recovery in near term.