Russia-Ukraine conflict: FADA lowers vehicle sales outlook to negative

The Federation of Automobile Dealers Associations (FADA) on Friday revised its outlook for the already struggling Indian auto sector down to negative from “neutral” on expectations that the Russia-Ukraine conflict will negatively impact the global auto supply chain.

“After omicron passed away without much impact and shipments showed signs of recovery, it looked like the Indian auto industry was on the verge of recovery until Russia invaded Ukraine. This will again have an impact on the global automotive supply chain,” the industry association said.

It added that there are concerns about semiconductor shortages creating additional problems on the supply side for passenger cars. “Until the point at which the conflict between Russia and Ukraine does not come to an end, FADA changes its outlook from ‘neutral’ to ‘negative’,” it said.

Russia is one of the largest producers of rare earth metals, particularly palladium, an essential metal for semiconductors, while Ukraine is one of the largest producers and exporters of neon gas, which is used in the manufacture of semiconductors.

“If crude oil crosses the $110 mark, the government will not be able to sustain the prices of petroleum products for long. After the results of the state election, oil distributors will raise fuel prices by at least £10-15,” the industry body said, adding that while this will pose a barrier to two-wheeler sales, it will also prevent educational facilities and offices from opening at the upcoming festival by Gudi Padwa, two-wheelers and buses could register an increased interest.

Total retail vehicle sales in the country fell 9.21% last month to about 13.74 lakh units from over 15.13 lakh units in February 2021, according to data released by FADA. Sales fell 20.65% compared to February 2020 sales of over 17.32 lakh.

Sales of passenger cars (PVs) fell 7.84% to 2.38 lakh vehicles, while two-wheelers and tractors fell 10.67% to about 9.83 lakh units and nearly 19% to 50,304 units, respectively . Sales of commercial vehicles rose by 7.41% to 63,797 units.

“The two-wheeler segment is showing no signs of recovery as Bharat continues to operate killjoys. As acquisition costs continued to rise, demand levels remained weak. As businesses and educational institutions continued to work from home, urban demand was also impacted,” said FADA President Vinkesh Gulati.

He added that while the PV segment saw some launches and a slight delay in shipments due to better production, this was not enough to meet customer demand.

“While commercial vehicles are not at similar levels compared to the months before the Corona crisis, a slight recovery on an annual basis was visible, mainly due to the low base effect. This, coupled with increased government infrastructure spending, has resulted in continued traction in the HCV and Tipper segments. Fleet operators that used to be missing have slowly started buying vehicles,” added Mr. Gulati.

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