Driving when the chips are down: Used car sales gain ground as semiconductors fall short: The Tribune India

Vijay C Roy

WHEN a Chandigarh-based businessman visited a local dealership to buy an Rs1 crore-plus Mercedes Benz GLS, he was told delivery could take up to six months. This failed to dissuade him, keen on the particular model. A long wait is the new norm for car buyers, especially for high-end vehicles. The global shortage of chips or semiconductors has affected almost every automaker, regardless of brand.

From consumer electronics to healthcare to automotive, there is virtually no industry or manufacturer in the country that has escaped the global shortage of semiconductors. The shortage of semiconductors or chips was even mentioned in the economic study tabled in Parliament. Data from the Society of Indian Automobile Manufacturers (SIAM) shows domestic auto sales fell 13 percent last December on an annual basis to 2,19,421 passenger vehicles. The drop in sales was not attributed to a drop in demand. Rather, it was a supply issue related to the continuing shortage of semiconductor chips.

“Due to the shortage of chips, availability is an issue and waiting times have increased. On average, the waiting period for high-end Mercedes models ranges between three and four months,” says Sanjay Dahuja, managing director of the Berkeley Group, which has Mercedes dealerships in Karnal and Dehradun.

Why the shortage

Demand for chips had far outstripped supply even before Covid-19, but pandemic-induced lockdowns have forced chip manufacturing facilities around the world to shut down. With the auto sector nearly shut down in 2020, chipmakers focused on consumer electronics like computer hardware and mobile devices, demand for which had increased dramatically with more people working remotely. Even after the ports reopened, the problem persisted as the transportation supply chain lacked the capacity to handle congestion at the ports. Manufacturers struggled to create enough chips. As it takes time to set up chip foundries, the backlog began to form and continued to accumulate.

While supply chain disruptions have had a knock-on effect in more than 169 industries, automakers have borne the brunt. The wait time for most models has increased by an average of two months. Renault and Tata Motors dealers say it ranges from four weeks to months.

“The good thing is that savvy buyers are willing to wait for their favorite cars even if it takes them six months,” says Deepak Joshi, Managing Director of Joshi Autozone, Chandigarh. Mohit Pratap, Managing Director, PMG Automobiles, Chandigarh, agrees that people understand the current crisis and therefore prefer to wait rather than cancel their plans.

Despite the shortage, there have been no compromises on features, the makers say. “Most cars are telematics. As they are interconnected, functionality cannot be reduced. Manufacturers therefore cut production,” industry insiders say.

“Last December, information from the websites of various automakers revealed a cumulative pending of more than seven lakh orders,” the survey points out.

The seriousness of it

Shipments of passenger vehicles from factories to dealers in India fell 8% in January this year, mainly due to the shortage of semiconductors, according to SIAM. Total wholesale passenger vehicle sales fell to 2,54,287 units in January from 2,76,554 units in the same month last year.

Maruti Suzuki India reported a 48% drop in net profit in the third quarter (October-December) last year as global chip shortages slowed production and high material costs squeezed margins. The company, however, said there was no shortage of demand as it had over 2.4 lakh of pending orders at the end of the quarter. Production was limited by a worldwide shortage of electronic component supply due to which approximately 90,000 units could not be produced.

Some manufacturers claim to have minimized the impact. “Our planning and execution has optimized production. Our market share has grown with ten-year sales,” a Tata Motors spokesperson said. “We do our best to manage optimal production levels and we coordinate with our teams. We assess the market month after month with cautious optimism,” confirms Tarun Garg, Director of Sales, Marketing and Service at Hyundai Motor India.

“Our planning cycles are long and as a result we were able to manage well,” an Audi India spokesperson says, adding that this is an evolving situation and difficult to predict. long term things.

Earnings for the used car market

A shift in industry dynamics over the past year has been the surge in used car sales. The market has seen a shift from people who don’t want to wait any longer to purchase a vehicle. The increase in demand has also led to a rise in the price of used cars.

“There has been a significant shift towards used cars. With the onset of the pandemic, every household is looking for a car out of necessity. The global chip shortage has already started to disrupt the new car industry with extremely long waiting times, encouraging buyers to buy used cars,” says Niraj Singh, CEO of Spinny, a retail platform used cars.

“Without a doubt, there is a huge demand for used cars. We are almost out of inventory. There are however constraints on the supply side as people are reluctant to sell or replace their old vehicles with new ones due to the shortage,” says Anil Malhotra, True Value Manager, Maruti Suzuki, Lovely Autos, Jalandhar.

Two years into the pandemic, people are also opening up to buying used cars online. The pandemic has seen an increase in test drives for used cars. “Consumers realized there was an easier and faster way to sell and buy cars,” says Mehul Agrawal, co-founder of CARS24.

Sedans dominate the choice

In the used car segment, it is the sedan that is in high demand. Spinny found that 57% of first-time buyers go for hatchbacks, followed by sedans and SUVs. “Maruti Suzuki, Hyundai and Honda reigned supreme on the buyer list, with Hyundai Grand i10, Maruti Suzuki Swift and Hyundai Elite i20 being the top car model preferences. 25-35 years old. Among them, 28% of buyers were women,” says Niraj Singh. asks, adds Mehul Agrawal.

Look forward

Despite the shortage, automakers are positive about demand. “We expect demand for passenger and electric vehicles to hold up even though concerns over semiconductor supply, high input costs, in addition to the pandemic, keep the overall situation fluid,” said a Tata Motors spokesperson.

Normalcy should return by July, industry insiders believe. Added to the hope are the initiatives that the Center took last December. Programs worth Rs 76,000 crore have been launched to attract international semiconductor and display makers and make the country a global chip manufacturing hub. Semiconductor manufacturing is capital-intensive and has an average gestation period of six to nine months. Moreover, it has a fairly long production cycle of around 18 to 20 weeks. Therefore, any recovery from supply chain disruptions will be slow and costly.

Used car market

The Indian automotive market is still at a nascent stage and under-penetrated compared to its counterparts in developed markets. The Indian second-hand market has huge potential with car ownership at less than 2%. The used vehicle industry is largely unorganized, with a multitude of gaps. The arrival of various new-age start-ups that have digitized used car sales has reinforced the tendency of buyers to choose used cars.

What do the numbers say

Used car market: $25 billion

Cut: 1.5 times that of new cars

Expected growth: 10-15% over the next five years

By 2025: $50 billion