October 8th, 2013, SIAM – Society of Indian Automobile Manufacturers, held their quarterly meeting today to discuss and review the performance of the Indian automobile industry for the period April to September 2013. Indian auto-industry is certainly facing a slow down if compared to the same quarters in 2012. Sliding rupee and inflation have hit the industry. Slow down in infrastructure development projects have resulted in decline of commercial vehicles sales of trucks and buses. Passenger car sales have declined along with sales of three-wheelers. The silver lining is the growth in the two-wheeler industry.
Vikram Kirloskar, President, SIAM said that “Unless we have a 8-9 percent growth per annum we can’t really consider it a growth in the auto-industry sector.”
Rising input costs have forced the manufacturers to increase prices of their vehicles. Many manufacturers have withheld the price increase as much as possible. This delay has helped consumers purchase vehicles at slightly lower rate before the price hikes. Rumours of lay-offs in the sector has been blamed off-late to lead to further ambiguity in the sector although it has been attributed to contract labourers only. Increasing cost of EMIs, unsteady stock markets and fears of job security in a market slowdown has been some of the other factors for declining sales in the automobile industry of our country.
SIAM hopes for the market to improve and turn around in the near future. The upcoming 2014 Auto Expo is a major event where more than 32 members are expected to participate. With various domestic and global manufacturers and partners attending the next Auto Expo, the new base for the expo has been shifted to a larger 47 Sq.m location this year. 2014 Auto Expo success will help in reassuring the market and sentiments of the customers in buying new cars. With many members still interested in participating in the 2014 Expo, SIAM continues to receive enquires for India’s biggest automobile expo.
But all hope is not lost because there is some growth in the industry. Car Sales have seen a growth of .73% in September, while in the Two Wheeler segment Scooters have seen a growth of 24.94% in September, Motorcycles have seen a growth of 17.44 % and Mopeds have registered only 2.92%.
Industry segment which has been hit by the slowdown in a major way in September is the commercial vehicle segment. Passenger Carriers have seen a decline in sales by 30.44% while Goods Carriers and other heavy vehicles have been hit as hard as 43.61% in September. According to SIAM for CV segment September 2013 was the worst month in the past 38 months and there seems no sign of improvement yet but for the passenger vehicles segment the future is still positive.
Although there is a slow down in the industry it is not across all verticals. SIAM sees growth in the industry as it produced a total 1,816,316 vehicles including passenger vehicles, commercial vehicles, three wheelers and two wheelers in September 2013 as against 1,673,006 in September 2012, registering a growth of 8.57 percent over the same month last year. The growth is on account of growth of two wheelers. Two wheeler demand has grown slightly owing to cheaper cost of ownership as car prices have been inflating on account of rising input costs and declining value of rupee.
The overall domestic sales during April-September 2013 grew marginally by 1.18 percent over the same period last year. This is again attributed to the fact that two wheelers sales has seen some growth.
Passenger Vehicles sales have declined by (-) 5.15 percent during April-September 2013 over the same period last year. Within the Passenger Vehicles, Passenger Cars, Utility Vehicles and Vans dropped by (-) 4.67 percent, (-) 4.79 percent and (-) 9.80 percent respectively during April-September 2013 compared to the same period last year.
Commercial Vehicles sales in its respective segment registered a de-growth of (-) 15.32 percent in April-September 2013 as compared to the same period last year. Medium & Heavy Commercial Vehicles (M&HCVs) registered negative growth at (-) 25.22 percent and Light Commercial Vehicles also dropped by (-) 9.61 percent.
Three Wheelers sales declined by (-) 4.38 percent in April-September 2013 over the same period last year. Passenger Carriers and Goods Carriers declined by (-) 4.04 percent and (-) 5.91 percent respectively in April-September 2013 over April-September 2012.
Two Wheelers sales have registered a growth of 3.51 percent during April-September 2013 over April-September 2012. Within the Two Wheelers segment, Scooters and Motorcycles grew at 16.59 percent and 0.88 percent respectively, while Mopeds declined by (-) 10.78 percent in April-September 2013 over April-September 2012.
During April-September 2013 overall automobile exports grew by 4.54 percent. Commercial vehicles and Two Wheelers declined by (-) 19.08 percent, (-) 0.35 percent respectively, while Passenger Vehicles and Three Wheelers registered growth at 13.77 percent and 29.89 percent respectively during April-September 2013 compared to the same period last year.
Rakesh Batra, Partner and National Leader – Automotive practice, EY, "Passenger vehicle (PV) sales in India continue to be under pressure with the market declining by 5% during the first half of this fiscal year. Although passenger car sales have gone up marginally by 2.0% during the second quarter of this fiscal year, this has only been on the back of lower sales volume last year resulting from a plant shutdown at one of the auto majors. On a calendar year basis, the PV market has gone down by almost 8% during the first nine months of 2013 – and all the three PV sub-segments, Passenger Cars, Utility Vehicles and Vans have been impacted. This can be attributed to the slowdown in economic growth, low consumer sentiment, high inflation, rising interest rates and high fuel prices. The depreciating Rupee has made the domestic scenario even worse – to make up for the increase in input costs, a number of automakers have increased vehicle prices and this is likely to further affect demand adversely
Two-wheeler sales are marginally up by 3.5% during the first half of the fiscal year with a strong growth in scooter sales, flat growth for motorcycles and a significant decline in the sale of mopeds.
Commercial Vehicles sales are also witnessing a continuous decline (down by 15.3% during the first half of the fiscal year) despite heavy discounts being offered by the manufacturers. Apart from the slowdown in the overall economy and the infrastructure sector, mining ban in certain states has hurt the industry’s growth. Truck manufacturers in India are estimated to be operating at just 30-40% capacity utilisation.
Despite the overall grim environment, there have been some bright spots. A significant growth in rural sales on the back of a good monsoon this year has meant that a few automakers’ sales to rural India has grown by more than 10%. Also, given the depreciation of the Rupee, PV exports from India have become more lucrative, growing by 14% during the first half of fiscal 2013-14. Interestingly, the used car market is also witnessing a strong growth (market grew by 22-25% during April-July 2013) as consumers try to reduce their discretionary spend amid the economic slowdown. A recent government move through which public sector banks are likely to provide cheaper loans for auto and consumer goods purchases has already brought some cheer to the industry.
As we enter the festive season, the performance during the months of October and November is very critical for the industry. To lure buyers, automakers are resorting to huge discounts, lucrative financing schemes, vehicle exchange programs, and also introducing new models or refreshed versions of their existing vehicles. We anticipate FY14 to be one of the most challenging years for the industry, with PV sales likely to decline by around 5% on a YOY basis. However, automakers with a strong presence in rural India or with successful new launches are likely to be in a better position than their peers. Industry profits are expected to further decline amid increasing costs, high discounts (to push vehicle sales) and low capacity utilization. Further, as a result of the gradual increases in the price of diesel, we anticipate the share of diesel vehicles in the PV market to be less than 50% in FY14 as compared to 58% in FY13.
We expect the PV industry to return to growth during FY15. Presently we expect automakers and suppliers to adopt several cost-cutting measures and tighten their working capital management. While the long term potential for the Indian automotive market remains positive, the significant economic changes in the last two years would require auto industry stakeholders to re-work their India strategy and work towards higher flexibility, operational efficiency, greater localization, increased focus on exports and effective management of their capital agenda."
Indian auto-industry is expected to turn around once the government eases out on excise duty, improves economic development along with better economic policies to halt and reduce inflation.