Is this the end of the automobile boom?

DEBATE

Years of high growth and a large base are partly responsible for this year's poor showing, and the impending fuel hike isn't helping either.

Murali Gopalan
Editor,
Autocar Professional

Not all is hunky-dory with the Indian automobile industry despite its good growth so far. Even while people are making a beeline for cars and bikes, what with rising incomes and easy availability of finance, there are serious issues that need to be tackled quickly.

The first relates to the quality of our roads, which is little to write home about. While this only increases ownership costs, the more alarming fact is that the pace of road development has decelerated considerably.

Producing more vehicles when there is an inadequate network is like putting the cart before the horse. Today, if people still buy cars and two-wheelers, a lot of this has to do with the poor state of public transport.

The other problem that could impair growth is the threat of rising world crude prices. Oil companies have been pressing for a steep hike in prices of diesel and petrol and the government, in turn, is doing its best to soften the blow.

Either ways, this will impact buying sentiment to the extent that petrol-driven cars in the mid-size category could see a slump in demand.

On the other hand, there could be a greater tendency to go in for diesel-driven cars and motorcycles for the obvious reasons of the price differential advantage as well as mileage benefits.

The commercial vehicle segment will, in particular, feel the pressure from high diesel prices and fleet operators will be compelled to defer purchasing because of pressure on operating costs.

There is already indication of growth having slowed down to an extent for a host of other factors and should there be a further hike in diesel prices in the coming days, it will do little to improve buying sentiment.

The automobile industry is in dire need of a policy on alternative fuels. Delhi is a classic instance of the benefits of clean air and this was made possible thanks to legislation.

Mumbai is also following suit and it is time that this spreads nation-wide not only from the viewpoint of emissions but economics. By the end of the day, the cost of CNG works out to be half of that of petrol which only strengthens its case for greater use.

A lot has already been written in the past about the high duty structures in the automobile industry and it is equally pertinent to add that this sector needs to be recognised as a driver of growth for the economy.

For instance, there was really no need to take such a long while on reaching a decision on the Daewoo plant in Surajpur especially when General Motors India was ready to restart operations.

It was important to ensure that workers in Daewoo got back their jobs and not face the same fate as their counterparts in the Peugeot plant that downed its shutters years ago.

Companies have also complained that state governments do not enforce rules relating to seatbelts and helmets for reasons best known to them.

Unless these issues are sorted out, it would be premature to say that all is well for the auto sector. There is a lot that needs to be done to ensure that the experience of owning a car or bike is a happy one.

Anang D Jena
Head, Synovate Motoresearch India

The perceived slowdown in car market is temporary in nature and will definitely bounce back in the next six months.

Cross-vehicle segment selection: Take the case of a car buyer opting for a non-sedan vehicle, (read, Toyota Innova) "" where is this customer coming from?

A part of this set comes from sedan potentials that impact the growth of car segment and don't necessarily expand the market in a substantial way. This results in distribution of share within the market, effectively, no real growth is observed in car segment. However, these are early adopters of the Innova, the sedan potentials (those currently opting for Innova) would go back to their original choice (the sedan), once the novelty of Innova wears off. This would reflect a growth in car segment and Innova would start expanding the market as well as stabilise it, thus leading to growth in that segment.

Implications of VAT: The bulk of the car buyers are businessmen and traders (over 60 per cent). Value-added tax (VAT) has direct implication on the businesses of this key buying audience and, hence, impact the purchase of cars.

This should be viewed as a temporary slowdown until the actual stabilised income by the businessmen and traders are calculated. That is, once the complete understanding of benefits of VAT by this audience happens, demand will pick up.

Launch of new vehicles: The multi-purpose vehicle (MUV) segment was not impacted to the extent the overall car segment was affected due to the high-profile launch of the Innova in February, which took care of that segment for the first half of the year.

The launch of the Swift happened towards end of the first six months of 2005 and, hence, its impact on the growth of car segment would be reflected in the next half of 2005.

Drop in sales of high-volume brands: Any drop in sales of high volume models

(Maruti 800) would be reflected in the growth patterns since a small drop in these high volume models would impact the growth of the overall car industry.

However, this is a temporary phase created by launch of the Swift. The high-volume models would soon bounce back to its normal sales once the "Swiftomania" is over.

Anticipation of new launches: Media reports citing instances of possible launches in the coming months would prompt the potential car buyers to postpone their decisions, but only postponement, not closure. No potential buyer would ever wait forever for a model to be launched, at some point in time, the rational thinking would take over.

Natural calamities: Towards the end of the first six months, excessive rains and flooding led to delivery issues for some manufacturers, and though this had a limited impact, there was, none the less, an impact on the overall growth.

The initial off take of the Swift indicates that the trend in slowdown of industry is likely to get reversed. The industry needs impetus or excitement to wake up from the slumber.

This excitement has to be provided by the auto manufacturers. Indian automotive industry needs more high profile launches and exciting offers on existing models to keep the enthusiasm of the customer intact, which will propel this industry into the fast track.