Car sales hit speed bump

The festive season is just round the corner, yet the domestic car market wears a sombre look as the car sales have dropped by 10 per cent in August this year against a growth of 33 per cent in the same month last fiscal.

The industry body, Society of Indian Automobile Manufacturers (SIAM), maintains that cumulatively the passenger vehicle (PV) segment as a whole grew marginally at 2 per cent in the first five months of the current fiscal (April-August 2011-12) to 9,77,201 units from the comparable figures of 9,58,656 units in the same period last year. Worse, the top three companies in the domestic car market - Maruti Suzuki, Tata Motors and Hyundai Motors - together reported a total of 20 per cent decline in sales.

Market leader Maruti Suzuki, which sells nearly half of all passenger cars in India, saw its sales slump by 19 per cent to 63,296 units in August 2011 on the back of labour problems at its Manesar plant which produces the new Swift. The general slowdown in demand also affected sales of the company’s existing small car models Alto and WagonR.  
Tata Motors’ small car Nano, also touted as the world’s cheapest car, saw its sales plunge 85 per cent to 1,202 units this August from a year ago, on account of increased stocks with dealers. This led to Tata Motors’ 33 per cent fall in overall passenger vehicle sales in August 2011. On declining Nano car sales, Tata Motors Managing Director (India Operations) P M Telang downplays it, saying: “Nano retail sales are good. As and when we expand further across the country, the numbers will gradually go up.”

Hyundai Motor India (HMIL), the country’s second-largest car maker, also maintained that its sales declined 6.7 per cent to 26,677 units in August 2011 from 28,601 units in the same month last year. Thankfully, its exports have grown by 11 per cent to 48,378 units.

Sudden brake
Meanwhile, the market continues to be tough and there is no sign of recovery in the immediate future. Since nearly 80 per cent of cars are bought with borrowed money, high interest rates and fuel prices have made things difficult for both buyers and manufacturers.

The RBI raised interest rates 11 times since March last year to combat inflation. Seeing the trend, SIAM has once again lowered the sales growth projection for the year to 11-13 per cent. But even this appears to be difficult to achieve.

“Initially, we were expecting the industry would grow by 16-17 per cent. But now it seems the industry would achieve single-digit growth numbers,” says Volkswagen India Director Neeraj Garg. Echoing similar thoughts, HMIL Director (Marketing & Sales) Arvind Saxena avers: “Market conditions are tough. The increased interest rates and fuel prices have impacted affordability of buyers. The festive season may bring in sales, but I doubt it will rev up the market.”

 Fearing a slow demand during the festive season some companies opted to cut production to align their output with market demand. Tata Motors confirmed the move saying it was slashing production across passenger and commercial vehicle segments.

“We have adjusted production to align with the demand. The production cuts vary across models,” says Telang. The Korean car maker Hyundai is now pushing sales overseas to offset the slowdown in the domestic market.

Ford India President & Managing Director Michael Boneham concedes that high interest rates and fuel prices have made things difficult, but he believes that “it is a short-term event and cyclical”.

SIAM President Pawan Goenka, however, thinks that “if somebody is saying the current slowdown in temporary, then it is too optimistic to talk about”. Goenka, who is also the President of Mahindra & Mahindra (Automotive & Farm Equipment Sector), says: “If we do not see an improvement in the next few months there will be a problem.”   

Cost push
To win customers, car makers need to offer incentives, but rising commodity prices is pushing up cost. “There are cost pressures happening from all sides,” maintains Telang.

General Motors India President & Managing Director Karl Slym says, “We will review prices of vehicles this month to see if any rise can be done in October,” while he points out that irrespective of slowdown in sales, prices of raw materials like rubber, steel and plastic prices are not coming down. Toyota has just hiked the prices of its existing models by up to two per cent, citing increasing input cost.

Interestingly, despite slowdown, companies launching new models witnessed a good traction in sales. As new models like Volkswagen Vento, GM’s Chevrolet Beat Diesel and Toyota Etios and Liva continued to evoke consumer interest. New launches helped Toyata raise its August sales by 84 per cent in August, while Volkswagen India witnessed a jump of 73 per cent. Honda reported highest ever sales at 6,907 units, a jump of 25 per cent in August mainly because of a price cut. Riding on country’s smallest diesel engine car Beat, General Motors saw its sales grow 14 per cent.

Discounts galore
To boost sales and create excitement in a depressed market, car makers have resorted to heavy discounts and other schemes. Maruti Suzuki, for example, is offering discounts ranged between Rs 20,000 to Rs 50,000 on its various models, So is Hyundai on its Santro and i10 models from Rs 25,000 to Rs 50,000 with a low EMIs of around Rs 4,500 on Santro with interest carrying at 6.5 per cent. 

 Tata Motors, too, has been offering discounts in the form of new schemes where a costlier diesel car is being sold at the price of a petrol car. Some car makers, who have hiked car prices citing the usual input cost rise, have come out with offers and discounts innovatively with some freebies thrown in like insurance fee waiver and some additional accessories for free to offset the increase in prices. Volkswagen, for example, is offering Rs 40,000 worth of accessories at no extra cost.

In the absence of a steady domestic market, car makers explored exports as an alternative and succeeded as well to a large extent. Maruti Suzuki, despite its overall sales declining by 13 per cent, still managed to post an increase in its export sales by 18 per cent to 14,356 units in August 2011. Hyundai and Ford are also pushing more cars into the export market. Ford is planning to expand exports of its small car, Figo, to 50 international markets as against 26 markets now.

“It is gratifying to see our Chennai-built Figo achieve sales beyond the 1,00,000 units sold here in India, as well as great results from export markets as well,” says Boneham of Ford, which had recently announced to invest Rs 4,000 crore to set up its second production facility in Gujarat, as part of its aggressive expansion and long term commitment.

 Several global automakers continue to line up new models and boosting investment in the country, with a focus on exports. CRISIL Head (Research) Sridhar Chandrasekhar, giving his perspective, says that eight new models are expected in the second half of 2011-12.