Luxury cars offer silver lining to country's auto sector gloom

Concept cars and bikes, close to six dozen stunning new launches, costliest models showcasing each one of them and the CEOs of world famous companies rubbing shoulders – at first glance, the just concluded Asia’s biggest auto show in New Delhi’s suburb of Greater Noida, defies all claims of India’s auto industry struggling with a decade-long slump.

Whether these concept cars will cruise into production line anytime soon in these tough times is anybody’s guess. But the manufacturers are holding onto some kind of hope. After all,  a large crowd of motoring enthusiasts – more than half a million – has visited the seven-day extravaganza. There is galloping demand from the rural market too. These may turn the tide in favour of the automotive industry and the road to recovery will perhaps begin from the countryside.

But, the bitter fact is that a broad swathe of people have stayed away from purchasing vehicles for a long time now and the sales have skidded to a new low. High borrowing costs and receding consumer confidence amid economic slowdown are factors that have contributed majorly. The data from Society of Indian
Automobile Manufacturers states that the growth in passenger car sales is set to decline close to 10 per cent in the financial year ending March. Compounding the problem is the prolonged slump in the commercial vehicles segment, which saw 23 months of consecutive drop in sales.

The automobile industry is desperately clinging on to the government for support. Some of them are even toying with the idea of fleet modernisation programme or scrapping of old cars aged 15 years or more to create demand. There is a buzz that the ministry of heavy industry is working on this idea, but only time will tell how far is this practicable and how many would agree to a law that wants a running car to be scrapped. And, even if a hundred cars are scrapped, will people be in a position to buy another hundred in the near future, is the question being asked.

Yet, until the auto industry comes out of the blue, the companies are working on changing in their strategy and trying to tap the new class of buyers – the youth, the big spenders, many of whom have also walked into top jobs and getting a salary an average Indian cannot earn even working for a life time.

Small cars vanishing

Similarly, the executives for whom an increased interest rate or economic downturn matters little. Daimler’s Mercedes-Benz, the first premium car maker to open shop in India in 90s, boasts of selling more than hundred new S-class luxury model cars, each costing Rs 16 million, in just a fortnight to Indian customers.

Another German Luxury car manufacturer Audi plans to launch its A3 sedan in the middle of this year. According to Audi India head Joe King, A3 sedan is expected to compete with the likes Mercedes A and B Class, and BMW 1 Series. Audi sold over 10,000 cars in India in 2013 and finished ahead of Mercedes which sold 9,003 cars and BMW even lower at 7,327 units.

The downturn has not affected the luxury car segment that was evident from the maximum rush that was witnessed at the hall exhibiting luxury car brands -- Audi, BMW and Mercedes-Benz and as many as 26 foreign launches in the auto expo.
A report by the Confederation of Indian Industry and IMRB International, a market research firm recently said luxury car sales were growing over 15 per cent year-on-year with a positive bias for the next three years.

Away from the high-end cars and bikes, the auto expo had little to offer for the middle-rung buyers. Scarcely any company announced launches in small car segments. On the contrary, Maruti Suzuki India (MSI) said it has stopped production of Maruti 800, the first small car in India, which changed the way India drove.

The car-makers are of the view that in coming days, the Indian market will be dominated not by the small cars but the mid-size cars also known as B-segment. The January 2014 sales data for MSI points to the loss of people’s appetite for small cars, the sale of which has fallen 17 per cent.

Similarly, Tata Nano could not capture much of the Indian market despite vigorous shift in marketing strategy. Some said, the high cost of production fetched very low profit margins on small cars and may be they will once again capture the market when the slow down recedes. Whatever may be the reason, it is too early to write the obituary of small cars in India, home to 33 per cent of world’s poorest people, according to the World Bank.

This strengthens the case for a reduction in excise duty on vehicles in the vote-on-account on February 17. Experts opine the auto industry is gasping for breath and many of them may fold up affordable brands if government help does not come forward. But manufacturers are not very hopeful from the incumbent government and most of them are waiting for a regime change and bold policy measures for a robust growth in auto industry.