2015, an inflexion year for car manufacturers

The year started with a rollback of excise cut benefits, which prompted firms to raise prices in January last year

Year 2015 will not come back for car makers. But, it will change the course of the sector for years to come. The year was marked by recovery in sales on the back of new launches, benign fuel prices and lower interest rates. However, it brought series of challenges as well.

The year started with a rollback of excise cut benefits, which prompted companies to raise prices in January last year. In spite of this and a slow rural economy, the industry posted a significant growth of nine per cent in the April-November period, though the growth was driven by a few top players. Growth for the comparable period of FY15 was less than three per cent.
 

The government set mandatory safety norms for cars to be followed from 2017. It advanced higher emission norms by three years and the sector saw legal action against diesel vehicles, prompting companies such as Mahindra & Mahindra to rethink their strategy.

"The happenings of 2015 has challenged the state of inertia to seek a changed order for 2016 and beyond, with new directions on emission, safety, quality and retirement age of vehicles," said Rakesh Srivastava, senior vice-president (sales and marketing) at Hyundai, the country's second largest car maker.

The automobile sector, according to what the government said in May, will have to meet mandatory frontal and side crash test norms from October 2017 for new launches, while existing models need to upgrade a year later. The decision, primarily aimed at making entry-level small cars safer, will increase costs of these cars by 10 per cent on use of air bags, etc. Manufacturers will also need to make structural and design changes.

The issue of safety in personal vehicles also came to the fore during the year when a public interest suit in the high court stalled sales and registration of cars weighing below 1,500 kg for almost two months. This impacted sales of the Maruti Alto and Hyundai Eon in the state.

Manufacturers also gave priority to safety, with 2015 seeing the largest recalls in any single year to replace or rectify faulty parts.

Environmental challenges and concerns on degrading air quality also prompted the government to recently advance implementation of stiffer mission norms for vehicles by three years.

The implementation of Bharat Stage V has been advanced to April 2019, while BS VI now needs to be followed from April 2021. But, the Society of Indian Automobile Manufacturers has said meeting BS VI by 2021 is 'unrealistic' due to the technical challenges. Cars compliant with higher emission norms will also come at a higher price, especially in the case of diesel cars.

"After years of neglect by all authorities, the awareness to control degradation of environment has suddenly increased," said R C Bhargava, chairman of Maruti Suzuki, India's largest car maker. An unforeseen event followed in December, when first the National Green Tribunal imposed a temporary ban on registration of diesel vehicles in the capital.

Subsequently, the Supreme Court imposed a ban of over three months on registration of diesel vehicles with engine capacity of above 2,000 cc in the national capital region (NCR). The restriction is in place till March 31,2016. The industry is apprehensive the actions in NCR could set a precedent for other cities facing problems of pollution.

The apex court's decision will primarily impact companies such as Mahindra & Mahindra, Toyota and Mercedes -Benz. Diesel vehicles of less than 2,000 cc are now being registered in the capital.

The share of diesel vehicles in new sales has started coming down, thanks to the price de-regulation of the fuel by the government in 2014. The share of diesel vehicles has come down from 42 per cent in FY14 to 37 per cent in FY15 and is further down to 36 per cent in the first seven months of FY16, making recovery of recent investments in diesel vehicle capacity a challenge.

"All these are significant developments and the industry will have to adapt to the changes. Some have a roadmap that brings clarity, while some come as a surprise and adds to uncertainty," said Jnaneswar Sen, senior vice-president (marketing and sales) at Honda Cars India.

Maruti's Bhargava says the petrol cars have not come under recent actions, adding that diesel technology will continue to have a future in India if the right fuel is made available by refineries.

Srivastava of Hyundai adds that 2015 will go down in the history of the automobile sector as an inflexion point and will set new directions.

CHANGING COURSE: 2015

• Jan: Excise cut benefit on cars withdrawn
   
• May: Govt notifies mandatory crash test norms to be followed from 2017
   
• Jun: Gauhati High Court bans registration of cars below 1,500kg after a PIL on safety concerns, ban lasts almost two months
   
• Sep: RBI cuts repo rate by an unexpected 50bps, making car loans cheaper
   
• Nov: Govt advances implementation of future emission norms by 3 years
   
• Dec: Delhi govt decides to allow plying private vehicles on alternate days (odd-even formula) for a fortnight beginning January 1; NGT temporarily bans registration of all diesel vehicles in Delhi; SC bans registration of diesel vehicles above 2,000cc capacity in NCR, registration of those below 2,000cc resumes