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FADA: RBI’s decision to make loans more expensive for the auto industry is a positive sign for the auto industry

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The auto industry is not yet in the clear. A top official of Federation of Automobile Dealers Associations (FADA) stated that the Reserve Bank of India’s (RBI), move to raise the repo rate by 45 basis point will make vehicle loans more expensive.

Comparing April 2022 auto sales with April 2019 FADA President Vinkesh Gulati showed that the sector is not yet in the clear as overall retails fell by minus six percentage.

Gulati indicated that, aside from the PV (passenger vehicle), tractors which increased handsomely by 12% and 30%, respectively, two/three-wheelers, and tractors, commercial vehicles are still to turn green. These categories fell by minus-11, 13 and 0.5 percent respectively.

“April 2022 saw similar Auto Retail figures to March 222. Although YoY comparisons with April’21 show all categories in green with high growth rates, it is important that April’21 as well as April’20 were subject to a nationwide lockdown because of phases 1 and 2. The Covid wave saw very little to no business. Gulati explained that April 19 will be a better comparison because it was a normal precovid month.

He stated that everyone was taken aback by the RBI’s announcement of an out-of-turn increase in repo-rate to 45 bps.

He added that the move would curb excess liquidity in our system and increase the cost of auto loans.

The shock may not be as severe for the passenger vehicle segment, which is able to absorb it due to the long waiting times, but the two-wheeler market is already suffering from an underperforming rural marketplace, increased vehicle prices, and high fuel prices.

The RBI’s move to increase vehicle loans at high interest rates will cause additional problems for this sector. Gulati stated that this move will certainly slow down the pace of auto retail and further dampen sentiments.

Private consumption, on the other hand is rebounding due to a recovering contact-intensive service as well as rising discretionary spend.

“With Russia-Ukraine at war and China locked down, the global auto market continues to experience supply crunch due to a semi-conductor shortage and high metal prices. Container shortages are also a problem.” Gulati stated that PV segment customers continue to experience long waiting periods.

Referring to Skymet’s normal monsoon forecast, a evenly distributed monsoon will have a positive impact on rural sentiment as farmers will be more successful in achieving their crop realizations and thus increase their disposable income.

This will benefit both tractor and two-wheeler vehicle sales. The auto retail market will benefit from this, as well as the marriage season.

FADA has changed its overall stance from extremely cautious towards cautious in the short term, with a slight recovery.

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