The upcoming expo gives the industry an opportunity to perk up the mood among buyers

In the coming week, thousands of automotive industry executives and hundreds of journalists will descend on India’s capital for the Auto Expo , being organised jointly by Confederation of Indian Industry (CII), Society of Indian Automobile Manufacturers (SIAM) and Automotive Component Manufacturers Association (ACMA).

As many as 26 vehicles are to make a global debut among the 70 new launches, and special space has also been created to showcase hybrid and electric mobility.

The 12 edition of biennial automotive event kicks off on February 5 with the daunting task of conveying positive messages after car sales in the world’s sixth largest automotive market plunged to the worst ever decline phase in 12 years as buyers tightened their belts to cope with increasing prices amid slowdown in economic growth.

In the last 8 months, fuel price has gone up by Rs.7 per litre. Interest rate for cars, light commercial vehicles and heavy commercial vehicles stand at about 12.5 per cent, 16 per cent and 13 per cent, respectively. Unless the operating economics improves or one has a business that will overcome this kind of a hike, it will be tough to spur demand in the CV segment.

Nightmare to industry

The downturn has brought a nightmare to the Indian auto industry, which has an annual volume of 18 million units (including passenger vehicles, CVs and two-wheelers), as none of the strategies, including freebies, discounts and subvention schemes worked since buyers are in no mood to spend their money on vehicles. Though utility vehicle (UV) segment was bucking the trend, the duty hike for SUVs (sport utility vehicles) in April 2013 took the sheen off the UV march.

Unlike many other sectors, the auto industry, comprising a world class supply chain capability, doesn’t cry for government help very often despite being a key driver of macro economic growth.

It has always shown more resilience to battle the tough market conditions. The current downturn is the longest. Neither the industry nor the government appears to have any clue on its revival. The auto industry could weather the past downturns - in 2002 and 2008 - as the revival occurred in reasonably quick time.

Also, the government came to the rescue of the industry during 2008 phase with a stimulus package.

With general elections round the corner, the government is no mood to do anything - either through incentive schemes or duty cuts.

As the recession engulfed the entire automotive industry, every vehicle segment has been battling to stop further sales erosion by resorting to unprecedented discounts, supported, of course, by assorted other schemes.

The worst-hit commercial vehicle segment, particularly the medium and heavy CV (M&HCV) category, is slipping into deeper recession with significant fall in month-on-month sales, as a result of the sharp decline of activity in manufacturing and mining sectors.

When the Indian (M&HCV) industry, world’s second largest by volumes, was about to see some beginning in its attempt to graduate to new standards of performance, efficiency and operating economics, the prolonged sluggish economic growth has played a spoilsport.

Despite unprecedented discounts for new purchases, fall in sales is deepening due to bleak cargo scenario and excess capacity issues. M&HCV sales are on double-digit decline lane. LCV segment too has slipped into negative growth lane after bucking the trend.

Both domestic and global players are battling with margin erosions and losses as trucking industry has held back its fleet expansion.

In passenger vehicles, only a few models have attracted buyers to showrooms. Of course, such a trend, where sales of feature-rich cars growing, was mainly driven by high income bracket consumers, who have lower sensitivity to economic downturn, high inflation and increased cost of ownership.

The industry, in a way has failed to lure legions of new consumers, who are now richer and clamouring for their first set of wheels.

Bharat shines…

However, there is a bright spot in the dark scenario. While India continues to falter, Bharat is shining i.e. the rural segment is providing some confidence. Tractors and two-wheelers are showing some signs of improvement because of better farm output . If this is an indication, there is a hope that rural is starting first and to be followed by urban for demand revival.

As the industry is now at the crossroads, the automakers are now trying to put the longer-than-anticipated recession in the rear-view mirror, and move on with new launches. This is done to maintain some momentum in the market place as also to attract new set of customers.

Amid negative sentiments, the Auto Expo 2014 presents an occasion for the industry to perk up the mood among buyers, and wait optimistically for the new government to put the economy on a strong wicket.

Numerous reports and studies talk positively about the long-term potential of the Indian automotive market, both on the manufacturing and consumption sides.

One area, however, has not received adequate attention from both government and the industry. That is the safety aspect.

As the demand rises for vehicles in India, the industry is sure to embrace new technologies and new platforms. They should also focus on using such innovative technologies to make customers safer and better drivers. There should be concerted efforts by the industry and the government to promote safe driving. No industry can claim success without responsibility. A stronger focus must necessarily be accorded to driving standards, too.


More In: Business | Industry