Russia-Ukraine Conflict Threatens Auto Industry Recovery Prospects

New Delhi: Vehicle retail sales in the domestic market have slumped further in the month of February this year as the auto industry continues to face the heat of semiconductor shortage thus impacting supplies. According to the Federation of Automobile Dealers Associations (FADA), total vehicle retail for the month of February'22 decreases by 9.21 percent.

When compared to Year-on-Year (Y-o-Y) basis, the vehicle retail sales for February 2020, was -20.6 percent (a regular pre-covid month). The passenger vehicle (PV) sales dropped to 2,38,096 units in February, down by 7.84 percent from 2,58,337 units in February 2021. The association said that although the PV segment saw some launches and slight respite in supply due to better production, it was not enough to meet customer demand. Vehicle waiting period continues to remain similar to what it was in the last few months.

Commenting on how February'22 performed, FADA President, Mr. Vinkesh Gulati, said, "Indian Auto Industry during February continues to remain in red as total retails were down by -9.21% YoY and -20.65% when compared to February'20, a regular pre-covid month."

But apart from the prolonged issue of shortage of semiconductor supply in the market, FADA has stated that the ongoing Russia-Ukraine war may further impact the supply chain. Russia is one of the largest producers of rare-earth metals especially Palladium, which is an essential metal for semiconductors. Ukraine on the other hand is one of the biggest producers and exporters of Neon Gas, which is used in the manufacturing of semiconductors. Due to the ongoing war, we once again fear the shortage in semiconductors which will create additional supply side issues for PVs.

"The ongoing Russia – Ukraine war brings a new set of challenges for Indian Auto Retail as raw materials for semiconductors will disrupt supplies and crude breaching US$ 110 mark will act as a hindrance on customer sentiment," the association said in a statement.

While the retail sales of two-wheelers stood at 9,83,358 units in February 2022, for the same month last year 11,00,754 units were sold, thereby registering a decline of 10.67 percent. However, the three-wheeler sales figure for February 2022 stood at 38,961 units this year incomparison to 33,404 units sales for the same month in 2021, thereby recording an increase by 16.64 percent.

The other auto segment which has performed well this year in February is the Commercial Vehicle with the sales figure at 63,797 units as compared to sales of 59,395 units in February 2021, an increase by 7.41 percent. The association also added that in view of the ongoing Russia-Ukraine conflict, it has changed its stance on its outlook from 'neutral' to 'negative'.