A bumpy road to ride over

Considering the turmoil the economy has been through, the outcome has been something that the manufacturers have taken in their stride effortlessly. Rising prices of fuel and materials, such as steel, aluminum, plastics and rubber, have pushed up costs and dented demand.

Sales outlook

High interest rates, rising fuel prices and increased input costs for manufacturers have deterred first-time buyers, which has impacted the sale of small cars, which is by-far the biggest segment in the auto market. Indian automakers sold 1,59,325 cars last month, as per data released by the Society of Indian Automobile Manufacturers (SIAM). Total sales for 2011 stood at 1.95 million vehicles, an annual rise of 4.2 per cent. Asia’s third-largest economy is a key growth market for global automakers that have seen demand hit by economic turmoil in developed markets. Brands such as Ford Motor Co and General Motors Co have ramped up their production processes in the country.

Demand for cars in India, resulting in sales growth at 30 per cent in the 12 months prior to March 2011, shrank in July for the first time in nearly three years, and continued to slide for three consecutive months, falling the most in over a decade in October. The car market leader, Maruti Suzuki India Limited, sold a total 8,65,522 vehicles in 2011. This includes 1,03,155 units for export, which is de-growth of almost 16 per cent as compared to last year, as per company figures. The manufacturer has sold around 7 lakh units during the April-December period in 2011, while the sales figure between January and March 2011 stood at 2.99 lakh units. Car sales in India climbed 8.5 per cent in December, the second consecutive monthly rise as the industry continued to rebound from record falls in sales in late 2011. Sixty per cent of the sales this year have been in the hatchback segment. The middle-category segment has grown at 19 per cent in 2011, compared to 30 per cent in 2010. Dipen Shah, Head - Fundamental Research, Kotak Securities, says, “2011 has been a difficult year for the auto segment primarily due to the economic slowdown and rising petrol prices. Maruti, the largest manufacturer in the segment in particular, had a different issue that bothered them.” The indication is definitely towards the labour problem that Maruti has been reeling under.

Looking into this sombre outlook of the sector, SIAM has already cut its cars growth forecast twice this year, slashing it to 2-4 per cent in October from a revised forecast of 10-12 per cent. The industry body had initially forecast growth of 16-18 per cent in April. The cumulative production data for April-December shows overall production growth of 14.94 per cent over the same period last year. Production in December, 2011 registered a growth of 10.91 per cent as compared to December, 2010.

Shashank Srivastava, CMO, Maruti Suzuki, says, “The first quarter in 2011 (Jan-March) was the best ever in the Indian auto history. However, the demand started falling from April onwards, which was primarily due to high interest and fuel price. In 2011, we have seen negative growth in the industry, and Maruti has been more negative than the industry.” The rest of the share, which comprises Ford, Chevrolet, Tata, Volkswagen and Honda, is quite miniscule in the segment. Maruti is the frontrunner in this segment with over 47-49 per cent share, followed by Hyundai with 27 per cent. The other half is highly competitive as they are still trying to set their footing in this high-demand segment in India.

Petrol vs Diesel

The debate of preferring fuel has been going on for decades now, which has clearly been taken to a whole new level. The price difference between petrol and diesel, which was somewhere near  `9 till just one year ago, has now crossed the  `20 mark. This fluctuation in petrol prices has had a direct impact on the demand for petrol vehicles. The growth of diesel vehicles in the first six months was around 24 per cent, whereas the petrol variant de-grew by 11 per cent, as per Dipen Shah. Srivastava says, “This year, diesel vehicles have done very well, growing at around 25 per cent while petrol vehicles have de-grown by 16 per cent.” These sentiments are matched by the figures that Maruti is dealing with in this regard. “The sales of diesel models are clocked at 21,000 units per month, which, compared to 17,000-18,000 units of last year, clearly shows that the pattern is shifting,” informs Srivastava. As per auto-experts, the impact of discounts being provided by the auto-makers hardly affects the unit sales. Mostly, the discounts are announced in December, after which the prices of models rise in January, which compels the consumer to buy-out in December itself. Excessive discounts or freebies every now and then can be catastrophic for a brand as they are perceived with definite inhibition. 

Customer and brand shift

There is an obvious change in the customer’s liking for the brands. The country, which was once ruled by Maruti 800, is gradually upgrading its preferences with more options available in the market. Though Alto is the highest selling car in the country with 20,000-24,000 units sold on a monthly basis, Swift of Maruti has grown the fastest. Last year, the market grew at 30 per cent, whereas this segment grew at 60 per cent, which speaks volumes about the potential of this category. The mindset of modern consumer is to spend whereas earlier there was a tendency to save. Also, the consumers are more experimenting, confident about the growth of the economy, and brand conscious. From the design perspective, sharp lines have become more prominent, character lines getting sharper, bent line has gone higher and DLO is getting much thinner. “There are three things which we have done: the design of the products is younger, sportier and more exciting. The other is communication, like what type of advertising, media you select. Thirdly, we have worked on infrastructure of retail point; the retail experience within a showroom has been upgraded,” says Srivastava.

Eco-friendly variants

While switching to gas-run buses is a runaway success, the same cannot be said for the private vehicle segment, which forms the major chunk of automobile in the country. CNG/LPG implementation has not been a success in the country when it comes to private vehicles, primarily due to infrastructural drawbacks, space congestion with CNG kits at the back of a car and safety concerned mindset of Indian consumers. “New technology can never get accepted unless and until the government gives its consent and if the government is really willing to promote it, then they would push for its acceptance day in and day out,” says Srivastava. “If you compare the American and European markets to the Indian market, we are not entirely concerned about environment issues, which is highlighted by the lacklustre and carefree attitude of the government,” Shah adds.