Lockdown Impact on Car Prices - Coronavirus Impact on India's Auto Sector
Team CARS24
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Lockdown Impact on Car Prices – Coronavirus Impact on India’s Auto Sector

Team CARS24

The COVID-19 outbreak has spelt havoc on the economies of almost every country in the world. The situation is no different in India, which has been hit by the global pandemic quite hard. Like all the industries, even the automobile industry has witnessed some heavy losses owing to the outbreak of this pandemic and the resultant lockdown. A survey conducted by us shows a significant change in buyer trends in the post-COVID era.

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The COVID-19 situation has lead to increased stress on social distancing, which means people will now prefer using personal vehicles over public transport. A survey conducted by CARS24 points out that the intention to use private cars over public transport has increased by 41%. Out of all the people using cabs to commute, 55% will shift to personal cars, while 15% will shift to two-wheelers. 55% of users of metro and buses will shift to private cars and 19% will opt for two-wheelers.

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The risk of infection and family needs have led to a major rise in more people wanting to buy a new car. While 53% want to buy within 6 months, 43% will now prefer a car for family transport needs. The survey also shows that demand for used cars is set to rise as consumers will have reduced budgets due to the economic downturn. 22.5% of those who had planned to buy a new car will now put their money on a used vehicle. Finally, it has also come to light that at least 25% of all car buyers will now prefer buying a car online.

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It is important to mention here that the Indian car market went through a massive sales slump even months before the outbreak of the pandemic. The fall in demand was triggered by the uncertainty that prevailed ahead of kicking in of the BSVI emission norms. As many rumours spread like wildfire, most car buyers suspended their purchase decision to post BSVI-era instead of picking up a BSIV car. Other factors that led to poor demand include rising interest rates and increasing interest in shared mobility.

However, automakers had anticipated a remarkable improvement in demand with the onset of the BSVI emission norms. Sadly, the COVID-19 outbreak in the second-half of March 2020 led to a complete disaster. The entire country went into lockdown in the last week of March, which meant the already low demand for cars in the last month of the previous fiscal suffered tremendously as people, who were planning to buy cars in the last week of the month at higher discounts, couldn’t visit the car dealers. By the end of the previous month, all car manufacturers had shut down their plants to curb the spread of the virus.

Battered by the outbreak of COVID-19 and the resultant lockdown leading to a huge economic slowdown, almost all automakers are now expected to price their BSVI offerings closer to the BSIV models in order to promote sales in the post-lockdown era. As we said, the Coronavirus’ impact on India’s auto sector has been so adverse that the entire industry is going through really bad times due to the prolonged slowdown last year owing to the uncertainty on BSVI vehicles, with the troubles getting amplified by the COVID-19. And hence, lockdown impact on car prices will be such that companies will tend to price their models competitively to help the market jump start back to life.

Toyota Fortuner

Major car manufacturers like Toyota, which commenced the sale of BSVI models back in January this year, had already decided not to pass the entire burden of BSVI up-gradation on to the buyers.  Hence, the BSVI version of the Fortuner was launched at the same price as the BSIV version. On the other hand, the Innova Crysta saw prices increasing by up to Rs 80,000 instead of Rs 1.5 lakh anticipated earlier. However, the company had already cleared that the vehicles were launched at introductory prices and would be increased at a later stage. It was being guessed that these prices would be hiked by a considerable margin by June 2020. Now, however, the lockdown impact on car prices of Toyota models will be such that the company would not tend to increase prices before it regains the lost sales momentum.

Kia Seltos

One would have expected Kia Motors India to not offer any discount on the Seltos but that might not be true. While the Seltos has been selling like hotcakes ever since it first entered our market, it has recently found a new challenger in the form of the second-gen Hyundai Creta, which could garner almost 7,000 bookings with four days of its launch. It’s quite clear that the new Creta would be seen eating into the sales of the Kia Seltos and hence, Kia might resort to offering some lucrative discounts to continue enjoying a high interest from the buyers. The same can be expected for the MG Hector, which is another popular SUV that was launched last year.

It is important to mention here that the general notion is to blame China for the outbreak of COVID-19 and the Chinese roots of the Hector could take a toll on the popularity of the vehicle. Basically, the MG Hector is a rebadged Baojun 530, which is a thoroughbred Chinese SUV. By now, many are already aware of the vehicle’s Chinese roots and the potential buyers could be sceptical about buying the Hector. Hence, lockdown impact on car prices of MG models will be such that we can safely expect some decent discounts from the automaker.

Hyundai Grand i10 (Nios)

Also, automakers like Mahindra and Hyundai, which continue offering diesel engine options in the BSVI era might not choose to offer a huge discount on their diesel vehicles. With Maruti and Volkswagen already having vacated this segment, the options for diesel car buyers have got really limited. Furthermore, even Tata has stopped selling the diesel variant of the Tiago, which means those wanting to buy a diesel-powered small car would only have the Grand i10 Nios and the Ford Figo as the available options. Hence, thanks to the low competition, discounts on these cars could be pretty low.

Speaking of Maruti Suzuki,  the country’s largest carmaker introduced BSVI cars way back in April 2019. Prices of its vehicles increased by up to Rs 11,000 with the introduction of BSVI engines. With the company already selling BSVI cars for a while, and with some discounts on offer since almost forever now, it might not have enough margin left to increase any sort of discount. “OEMs are skating on thin ice and may not have headroom to reduce prices. But what can be done is offering financial incentives to car dealers and consumers”, said Shashank Srivastava, Executive Director, M&S, Maruti Suzuki. From this, it’s clear that the company has already made a lot of investment to achieve compliance with the new norms and any further price reduction could not be possible.

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Above was a brief report on lockdown impact on BS6 car prices in India. Next, let’s study the effect of Coronoavirus on Petrol and Diesel prices in India.

Effect of COVID-19 and Lockdown on Petrol and Diesel Prices in India 

Of course, other than a huge slump in car sales, the lockdown has also resulted in a pretty big drop in sale of petrol and diesel. As the lockdown has resulted in most vehicles going off the road, the country’s appetite has led to a huge drop in demand for both the fuels. This is the very reason the crude oil rate has gone below zero dollars per barrel for the first time ever.

Indian state fuel retailers are said to have experienced a 17 per cent drop in sale of petrol and about 26 per cent drop in the sale of diesel in March 2020 on YoY basis. This percentage will drastically increase once the April figures are out as the vehicles will be off the road for the entire month. State-owned oil companies like Indian Oil Corp, Hindustan Petroleum Corp and Bharat Petroleum, which together own almost 90 per cent of the country’s fuel outlets, will likely report huge losses this month. Petrol sale in India in March stood at 1.94 million tonnes, while diesel sales reduced to 4.98 million tonnes.

The tough restrictions on air travel have also led to the sale of aviation fuel dropping by 33 per cent to 450,000 tonnes during the month of March. Things will be much grimmer by the end of April, as the flights are yet to resume operations anytime before next month. On the other hand, with everyone confined to their homes, the country’s appetite for LPG (liquefied petroleum gas) or cooking gas rose 1.7 per cent in March and should rise even further for the month of April. Hence, from the above, it’s clear that the oil companies would report losses at least for the month of April. However, it remains to be seen if the falling crude oil price would lead to a reduction in prices of petrol and diesel in India.

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