PIC : SHUTTERSTOCK

NEW DELHI :

At a time when the automobile sector is witnessing an unprecedented sales disruption due to COVID-19, rural markets have brought some cheer. While the urban customers continue to face unprecedented income uncertainty due to widespread job losses and consequent income disruption, the uninterrupted rural economy is where green shoots have appeared, which has resulted in a cross section of vehicle dealers, manufacturers and financers wooing the rural customer. 

Following a stringent nationwide lockdown in the months March and April, partial manufacturing and sales of vehicles began in May. The month saw most activity across showrooms of entry level bikes, used vehicles and tractors. In June, the rural-urban divide only amplified, with entry level cars and bikes as well as tractors and even small commercial vehicles staging a smart recovery.

The country’s largest two-wheeler maker, Hero MotoCorp, sells one in two vehicles to rural customers. A sharp recovery in sales in June doesn’t come as a surprise, since the rural focus of the company has always been strong besides its large presence in the entry level segment. Hero sold 450,744 units last month, posting a record sequential growth of over four times over May when the company had dispatched just 112,682 units. Sales have already reached 90% of pre-Covid19 level for Hero as a major part of this demand is emanating from rural and semi-urban markets. A Hero spokesperson said the demand has been positive across the country, except for the markets badly affected by Covid19, such as Maharashtra and Gujarat. He said the demand seen in the rural and semi-urban markets, is a result of various stimulus packages rolled out by the government. “A combination of multiple factors, including the forecast of a normal monsoon, a bumper Rabi crop and the upcoming festive season should keep the momentum going over the next few months,” the spokesperson said.

Maruti Suzuki India, the country’s largest car maker, is also a beneficiary of extensive rural penetration as it witnessed a renewed interest of buyers in entry level cars. Shashank Srivastava, ED (Marketing and Sales), Maruti Suzuki India said during a recent analyst call that a “shifting down” of demand was happening. “This is known as a transfer of demand across segments. So from the upper segments the demand comes a little to the lower segment, the lower segment for further lower and so on and so forth, but yes that is true. The trend might be towards the smaller cars. Initial enquiry levels which we have seen this month from the showrooms which have opened suggest that trend, but I think it is just too early to say that the trend is definitive.”

In the case of tractors, the turnaround has been spectacular. A brokerage firm has spoken of strong traction in the rural economy, on the back of a bountiful crop season last year, increase in the minimum support price (MSP) for crops, expectation of a plentiful monsoon this year and healthy reservoir levels to predict the next tractor “upcycle,” which may last for another two years. Such predictions are surely music to the ears of not just tractor makers but also manufacturers of other vehicles which have a large rural spread.

Providing more details on the company’s growing rural demand, Hemant Sikka, President, Farm Equipment Sector at M&M told TURN OF SPEED that this was the peak season for the tractor segment with demand being robust due to various factors related to strong Rabi output, government spending in rural India, including higher procurement and good price realizations. He said outliers like Maharashtra, Madhya Pradesh, Gujarat, Telangana and Andhra Pradesh have shown very strong growth in tractor sales. Analysts at brokerage firm Motilal Oswal pointed out that M&M has been witnessing good on-ground momentum in tractors as well as in Bolero and Scorpio. They said tractor sales have recovered to FY20 levels and are even growing in some regions due to improved outlook for farm income. M&M has one of the highest exposures to rural markets (~65% of volumes) and is well positioned to benefit from rural recovery, considering its dominance in the tractor/LCV business.

Rajan Wadhera, President of the Society of Indian Automobile Manufacturers (SIAM) said recently that overall vehicle sales are projected to decline by anywhere between 26-45% this fiscal and capacity utilisation across vehicle manufacturing plants is unlikely to surpass 60-70% for the next two-three years. In vehicle categories such as passenger vehicles and medium and heavy commercial vehicles, the degrowth in sales would be steep. In such a dismal scenario, when a prolonged industry wide downturn seems to be a distinct possibility, the growth in rural markets – at least for bikes, scooters, small LCVs, small cars and tractors - definitely brings cheer.