 "A year of recovery for auto sector")
The year, 2016, brought speed to three critical segments of the domestic automobile industry. Passenger vehicles (cars, vans and utility vehicles), two wheelers and tractors all seem on track to post a double digit growth. After the note ban, the prospects appear to have been temporarily impacted but industry experts are hopeful of a double digit growth in more than one segment for the financial year.
The year started amidst uncertainties with regard to diesel vehicles after the Supreme Court imposed a ban on sale of diesel vehicles (2,000cc and above) in the national capital region in December 2015. The ban did not directly impact bigger players like Maruti Suzuki and Hyundai but created negative sentiments towards diesel cars and SUVs. Companies like Honda Cars had to rework strategies to maintain volumes. The ban was lifted in August 2016 after the industry agreed to pay one per cent cess on such vehicles.
But the industry was also blessed with some positives. The key growth triggers for FY17 came in form of a normal monsoon (after two consecutive deficit years) and increased wages of government employees under Seventh Pay Commission. Other positives like moderate fuel prices and a stable interest rate also favoured purchases.
Some new records are waiting to be made in the domestic automobile market at the end of this financial year. Sales of passenger vehicles are poised to hit a record high in FY17, after hitting a record 2.78 million units in domestic market during FY16. In the first eight months of FY17, two million passenger vehicles have been sold, 9.84 per cent more than corresponding period of last year. In FY16, growth had been 7.24 per cent. Several successful launches like Maruti Suzuki’s Baleno and Brezza, Hyundai’s Creta, Renault’s Kwid, Tata Motors’ Tiago and Toyota’s Innova Crysta have played a key role in this growth.
But not all companies have benefited from this growth momentum. The list of gainers includes Maruti Suzuki, Hyundai, M&M, Tata Motors, Toyota, Renault, Ford, Volkswagen and Nissan. Those who declined in this growing market are Honda Cars, General Motors, Skoda and Fiat.
Rakesh Srivastava, senior vice president (sales & marketing) at Hyundai said 2016 looked like a challenging year for the industry and new successful products played a critical role in deciding growth.
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Maruti Suzuki chairman RC Bhargava last week said he didn't want to make a forecast for the (company’s) January-March quarter but added that in the worst case scenario the company’s growth will not be very different from ten per cent. There was an element of worry though. “I want to have little bit of evidence as what happens in January before we predict for the whole year,” Bhargava said.
While the year gave car makers an opportunity to consolidate on the growth on previous year, for two wheeler makers, especially motorcycles it is a trend reversal. Against a 0.24 per cent decline in domestic motorcycle sales during FY16, volumes in April-November period of FY17 have grown over 9 per cent. Along with fast growing scooters and mopeds, the domestic two-wheeler market has grown over 13 per cent during first eight months of the year. Last year (FY16), growth was 3 per cent only. Domestic two wheeler volumes in FY17 could hit a new record.
KN Radhakrishnan, president & chief executive officer at TVS Motor Company, the third biggest player in domestic two wheeler market said positive customer sentiments from rural market owing to better monsoon along with revised wages of government employees contributed to growth. “It is expected that two-wheeler industry will post a steady growth in 2017”.
Tractors, a barometer of the rural economy, could also post a near double digit growth in FY17 after a double digit slump in FY16. Other segments of the industry (with the exception of medium and heavy commercial vehicles) such as light commercial vehicles and three wheelers have also reported growth.
Demonetisation has slowed down the pace of growth for most segments of the industry. “The demand in certain segment will take time to normalise. The January-March quarter will be the quite challenging one for Indian automotive industry,” said Abdul Majeed, partner at Price Waterhouse.