Today,while many sectors and economies over the world are struggling, Automobile is a sector which seems to be gearing to drive into the future. It seems, this sector just paused during COVID times. We take a look at what indicators related to Indian automobile sector are suggesting and why it will bounce sooner than expected.
Reduced Steel prices:
Many auto majors, worldwide, are offering incentives to buyers and India businesses can’t be left behind. One of the major reasons for this has been the reduced steel prices. Steel has been a major raw material for the automobile industry. Since steel companies see the automobile industry as an important stakeholder, many have sealed contracts with automobile companies over reduced prices. Prices of auto-grade hot rolled products — used in body panels have been reduced by an average Rs.6000 per tonne. A similar correction was seen in cold-rolled close-annealed (CRCA) products which are used in a car’s exterior. That steel accounts for 50 percent of a car’s weight is a close indicator of how automobile companies will benefit from these reduced steel prices. It’s no wonder, companies have started offering discounts.
Reduced Loan rates:
The other key indicator for any industry is finance. With rates on deposit and loans being decreased over the last few months by India’s central bank ( Reserve bank of India) and other central banks across the world, it is surely going to surge the demand for new automobiles in general and car’s in particular. A win-win for both Automobile industry as well as buyers.
In countries like India, the activities in rural regions have been seen to be little insulated from the COVID effect. To add to this, there has been a bumper crop production in the Rabi season, which refers to winter harvest. If people felt the labour crunch was a problem, that would also mean the farmers shifting to automation efforts like the use of tractors and crop drying machines. The very fact that sales of tractors in May 2020 increased around 4 % on a Y-O-Y basis underlines the fact that the rural economy is robust. & then, we are expecting a normal monsoon this year which itself is great news.
Confidence in workforce:
A number of auto majors are doing acts of kindness to retain their talent. Many auto majors were happy to not cut the salaries of their employees after the COVID became notorious. In fact, many of them completed their annual appraisal cycles. Companies like Honda, Toyota and Renault offered promotions & increments in the range of 5-10% were not disappointing. All this confidence comes from the fact that, post COVID, people will give priority for personal vehicles instead of public transports leading to higher sales.
General Positive Sentiment:
A growing economy is a cycle and it requires triggers. One sector leads to growth in another. Like auto sales will trigger business for banking and logistics. Logistics triggers the travel sector which triggers oil. All indicators are slowly and surely turning positive, some may be quick, others may be a little slower than expected. Hope for better days or what you call – Acche din ahead !!