Car-makers accelerate on Govt gas

BUSINESS LINE, DEC 24, 2009

Manu P. Toms

Mumbai, Dec. 24

Record sales, 30 new launches and companies reporting historically high quarterly profits – the passenger car industry could not have asked for more.

“A year that I don't think anyone would have expected,” says Dr Pawan Goenka, President, Auto Sector, Mahindra & Mahindra, who is the President of the industry body, Society of Indian Automobile Manufacturers (SIAM).

In fact, 2009 was a tumultuous year for the global auto industry, which witnessed the world's largest car maker General Motors filing for bankruptcy, Toyota posting a net loss for the first time in 70 years ,and car sales falling in most of the mature markets. And, yet, the Indian car market showed a 20 per cent growth.

The high double-digit growth comes immediately on the heels of a year ridden with inflation, credit squeeze and the global slowdown – factors that threatened to put a spoke in domestic car sales.

Industry officials attribute the domestic growth to the Union Government's stimulus package comprising an excise duty cut and Cenvat reduction, besides a slew of other measures to ease the credit situation.

“The first three months of the 2009 calendar year were months of apprehension. In April, May, June we saw very decent growth. In October, November it bumped up. Overall, if we look at it in terms of profit growth and volume growth, it has been a very good year. A year that I don't think anyone would have expected,” says Dr Goenka. According to him, the combined effect of the stimulus package, low interest rate and low commodity prices saw customers coming back to the showrooms.

According to Mr Rakesh Batra, Partner and National Leader, Auto Practice, Ernst & Young, the Indian passenger vehicle volumes will cross two million units in the current financial year.

Innovation



Tata Nano - The People's Car

The year 2009 is marked by not just the robust sales posted by individual companies but also by the product innovation skills exhibited by the Indian manufacturers.

It also saw the much-awaited commercial launch of the world's least expensive car, Tata Nano. Around 15,000 Nanos are out on the street ever since Tata Motors began the delivery of the car in July. While the company is busy ramping up the capacity at the makeshift Nano plant in Pantnagar and readying up its Sanand plant for small car, close to 1.5 lakh customers are waiting for their turn to drive away the ‘People's Car'. This year, Tatas took another important step by starting the retail of its British luxury models Jaguar and Land Rover in India.

Keeping in line with the Centre's Automotive Mission Plan to make India the global small car hub, car exports topped three lakhs during the calendar year. Riding on the scrappage incentive scheme in Europe, where fuel efficient small cars caught the fancy of customers, Hyundai Motor India and Maruti Suzuki enjoyed better overseas sales.

“India's significance at the global level is increasing. India surpassed China in the number of cars exported,” said Mr Batra.

“Various players, including Toyota, Ford and Hyundai, have announced their plans to make India a manufacturing hub for small cars. The GM-Reva tie-up shows that India's contribution at the global level goes beyond the low-cost-manufacturing,” he said.

Small car revolution

The small car revolution in India continues with companies breaking their own sales records month by month. In November, Maruti and Hyundai recorded their highest ever monthly sales at 88,000 and 55,000 units respectively.

Another significance of the year is the car industry's increasing penetration into the rural markets. Maruti, which consistently enjoyed good sales through out the year, sees increasing rural sales as one of the key factors. “Our strategies worked really well. We are present in all segments of the small car market and we had three launches in last 12 months. Alto at 2.6 lakh units continues to be largest selling model in India,” said Mr Mayank Pareek, Executive Officer, Maruti Suzuki.

Going forward, the increasing raw material price, likely fiscal measures to control inflation that will lead to an interest rate hike which in turn will affect EMIs (equated monthly instalments) and the cost escalation that comes with new emission norms – all suggest the going might not be as smooth as it used to be. However, according to Dr Goenka, auto companies that made good profits during the year are able enough to absorb some of the pressures. “I see no dark clouds as there is no slackening of demand,” he says.

According to rating agency CARE (Credit Analysis & Research Ltd), among households that can afford a car, the penetration is as low as 45 per cent. With many more entering into the bracket of households that can afford a car, the demand scenario looks strong for the next few years. The last thing car-makers want now is a reversal of stimulus measures as everybody wants the momentum to continue