Fuelled out Motown looking to accelerate in 2013

The passenger vehicle segment of the automobile industry hopes to get on the fast lane in 2013, after a rather bumpy ride in 2012.  

Manufacturers were caught in uneasy circumstances during 2012, even as they had to contend with competition in a crowded market, with many players looking to grab a pie of the 1.59 million (April-November 2012 sales) market.

Carmakers were affected by a plethora of issues, which not only partially dented their volume growth, but also posed challenges to future sales.

The passenger vehicle segment grew at a modest 9.62 per cent during April-November 2012 over the same period last year, according to the Society of Indian Automobile Manufacturers (SIAM). Passenger car sales, which include sedans and hatchbacks, grew by a paltry 1.28 per cent, while van sales grew 1.04 per cent.

Of the 16 car makers, nine companies reported a decrease in production, while three reported growth of less than 4 per cent. Only Nissan, Toyota Kirloskar, Honda, Hyundai, Maruti Suzuki, Renault and Skoda Auto posted growth during April-November 2012.

According to the country’s second largest car maker Hyundai Motor India’s (HMIL), 2012 was a tough year for the industry. Its Vice-President (Marketing and Sales), Rakesh Srivastava, said: “The reason were rising fuel prices, high interest rates, rising input costs, inflation and sharp rupee depreciation coupled with the impact of economic slowdown.”

The external environment was no less challenging for passenger car makers, yet, exports grew 24 per cent. Hyundai was the country’s largest exporter of cars, whose market share is currently around 19.3 per cent.

One of the most important aspects of the car industry is the dependence of pricing on the price of petrol and diesel, and also consumers’ buying behaviour influenced by interest rate on loans, as over 85 per cent of buyers purchase cars through bank finance in India.

In 2012, car makers had to face repeated hikes of interest rates, consequent to a hike in bank rate by the Reserve Bank of India, leading to a slowdown purchases. They also had to contend with the rise in diesel and petrol prices, as the government continued with its policy of hiking them, following rising crude prices in the international market.

General Motors India Vice-President P Balendran said: “Entry-level gasoline cars have been hit the hardest and the segment has shown a decline.” This segment used to be the mainstay of the Indian car market, dominated by the likes of Maruti 800.

In 2012, interestingly, utility vehicles (including SUVs and MUVs) posted an impressive 62 per cent growth over last year, establishing a new trend on the Indian automobile landscape. Owing to their functionality, practicality, safety and road presence, besides coming fitted with powerful diesel engines, UVs became some the most sought-after automobiles in India. 

Nissan Motor India Managing Director and Chief Executive Officer Takayuki Ishida said: “The popularity of utility vehicles is growing at a steady pace. We are witnessing a strong trend, which matches the purchase capabilities of the Indian consumer.”

Analysts also believe that UVs are here to stay. “The growth, as we see, is almost entirely driven by UVs, which have clocked around 61 per cent growth for the first five months,” said Yaresh Kothari of broking and financial services firm Angel Broking. 

Labour crisis

One of the most infamous crises of 2012 remains the labour unrest at Maruti’s Manesar plant. It adversely impacted the company’s volume sales in the second quarter this fiscal “Maruti’s passenger car segment in its totality is not doing really well, barring its three popular models Swift, Dzire and Ertiga, which have sold well during the period,” Dolat Capital analyst Mayur Milak said.

The unrest, it may be recalled, led to the unfortunate death of HR General Manager Awanish Kumar Dev and injury to about 100 others, including three senior executives; the loss to property was also substantial.

Many popular launches happened during the year. While many companies continued releasing refurbished, newer versions of existing models, others rolled out new models. Some of the companies included Maruti, which launched its MPV Ertiga in April, 2012, followed by new Swift Dzire, new Ritz and Alto 800. Nissan launched its MUV Evalia, Mahindra launched Quanto, and also Rexton from its SsangYong stable. Tata rolled out Safari Storme, Renault brought in Scala, while Hyundai launched its neo-fluidic Elantra, Sonata and a refreshed i20.   

GM launched many new variants. “We launched five cars (in 2012), including new Tavera, new Cruze, new Captiva, new Spark and the all new SAIL U-VA premium hatchback,” Balendran said. The launch of new cars in the market only showed that companies continued to be upbeat about Indian market and see great prospects in the coming year.  
India is an important and fast-growing marketplace, with a country of more than a billion people. It is estimated that there are around 13 vehicles for every 1,000 population, which constitutes an ownership ratio that is among the lowest in the world. This, Ishida said, is a reflection of the country’s huge market growth potential. “We are very hopeful that 2013 is more promising. We project that the total industry volume in India could top 4 million units in 2014. We see the industry overall growth to be at 10-12 per cent in the coming year,” Ishida said, adding that the passenger vehicle segment is expected to grow around the same percentage. India is bound to witness the growing trend in utility vehicles even further in 2013. “We see a growth projection upwards towards 30 per cent in this segment,” he added.

“The Indian car market is dominated by small cars and hatchbacks and it is likely that this trend will continue. Demand for sedans and SUVs/MPVs are also likely to witness growth,” Srivastava said.

There is expected to be an upward mobility of consumers seeking to raise the bar as they earn more and tend to buy costlier cars. “We have noted the inexorable rise of the premium market in India, reflecting the growing disposable income of middle-class consumers. We see a huge potential in the luxury segment,” Ishida said.

Supportive policies

Car makers are also expecting that the government will come out with industry-friendly policies in the coming year, and they are keenly watching Budget 2013.

“In next year’s union budget, we are expecting the government to reduce the excise duties to the previous (2011-12) levels. The excise duty rate on motor vehicles (other than small cars) should be reduced to a maximum of 22 per cent for large size passenger vehicles and utility vehicles. For small cars, it should be rolled back to 10 per cent,” Balendran said, adding that introduction of GST (goods and services tax) across all states should be implemented to prevent cascading effect and levies such as road tax, R&D cess and octroi should be subsumed in it.

As the country’s carmakers hope for a better year, they believe that there has to be a renewed focus on infrastructure especially hybrid and electric vehicles for which funds need to be made available by the government. It is pertinent here that in 2012, Mahindra unveiled its electric car Reva NXR, which it is hoping, will establish yet another trend in the market. As the market continues to grow, more companies are expected to make inroads, which will in turn add to new launches and expansion of dealer network. Hence, car makers are upbeat about the coming year, notwithstanding the underlying concerns.

“The economic growth, inflation and higher interest rates will continue to be areas of concern for the auto industry. Fuel rates especially petrol are likely to go up. All these will contribute to the rising cost of ownership, hence needing immediate attention from the government,” Ishida said.

Even analysts warn of impending troubles for the auto industry, continuing to see slowdown affecting sales. According to Milak, “With the continuing slowdown, we expect the year to end with overall car sales growth at 2-3 per cent. Though there is anticipation of a cut in interest rates, it is difficult to say. Discounts are high, but companies are finding it difficult going ahead with volumes.”

Comments (+)