The euphoria of the Auto Expo has started waning all too quickly, with the automobiles industry receiving a rude wake-up call. With customers postponing car purchases in anticipation of new models, and the economy showing little sign of picking up, car sales in the mid-size segment fell dramatically in January.
The downtrend is showing signs of spreading to the small car segment, which is dominated by Maruti Udyog. Sales of the Maruti 800 slid from 18,537 in January 1997 to 17,652 this January.
According to an industry estimate, car sales in the mid-size segment have dropped by 30 per cent in January compared with sales in the same month last year. Companies like market leader MUL, General Motors and Mah-indra Ford have all suffered a dip in offtake despite aggressive discounting and price cuts by dealers in the mid-segment car market.
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For instance, Maruti Udyog sold a mere 1,565 Esteems in January compared with a target of around 1,900. In January 1997, MUL had hawked 1629 Esteems, 4 per cent more than what it sold this January. The dip in the Esteems sales has come despite dealers offering discounts of Rs 20,000-25,000 on each car.
In fact, dealers say they have been passing on their margins to customers to achieve their sales targets crucial for dealers, since car deliveries are made to them depending on the extent to which they meet their targets. For example, if a dealer does not meet his sales target, MUL delivers less cars for the next fortnight.
Mahindra Ford sold about 400 Escorts in January down 44 per cent from January 1997, when it sold around 714 cars. GMs Opel Astra is also finding buyers tough to come by. General Motors sold about 281 Astras last month, nearly a fifth of the 1,104 cars it sold in January last year.
A senior GM executive termed the market state as one of near depression. Our projection was about 52000-53,000 cars in the mid-sized segment this year. But this January, this segment stood at 3,100, down from 4,486 in January 1997. We are very concerned that the market has declined so quickly, he said.
He added that most sales were taking place in the lower end segment of Marutis Esteem and Daewoos Cielo because of the lower prices. The real decline began somewhere around July last year, and perhaps it is yet to see the bottom.
The fact that sales in the mid-size segment are concentrated in the lower end is reflected in the trebling of Daewoo sales from 314 in December 1997 to 916 in January. However, despite massive price cuts of over Rs 1 lakh for the different Cielo variants, its sales were a mere 24.3 per cent higher than the 737 cars the company sold in January 1997, when the price was much higher.
One key reason for the dip in the offtake of cars is that customers are postponing purchases as they wait for more choices to become available. As a senior Maruti executive pointed out, The mere announcement of the Honda City has led to people postponing car purchases.
Honda-Siel has already received firm orders for over 1,000 cars from three centres which have accepted such orders Delhi, Chennai and Chandigarh within a fortnight of the opening of its first delearship on January 16. The company hopes to complete the delivery of these orders by March.
MUL executives pointed out that the customers decision to postpone purchases would hit their company the most as they have the maximum production volume and if sales dont pick up, they might be saddled with large inventories or forced to cut production.
A similar view is echoed by Daewoo Motors managing director S G Awasthi: What is bound to happen is that customers will postpone the decision to buy a car and wait for new models to come before taking a decision.
Company insiders say MULs problems have been compounded by the fact that it does not have a new model on the horizon to take on the new small cars that will hit Indian roads soon.
Ideally we should have had a new model in June or July to take on the new small cars coming in the market. Now we are in a very difficult situation, specially as the competitors are bringing in new technology, admitted an MUL insider.
Daewoo already expects to start firming up orders from June and July and the first deliveries are expected to be made from September. Hyundai is also planning to hit Indian roads by the end of the year. And with Telco also joining the fray, the Indian consumer will soon be spoiled for choice. But the big question now is, will she bite?