New model sales are driving even the less- than-average growth in the industry.
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In the face of the decline in motorcycle sales and low growth in those of commercial vehicles, automobile sales have gained respectability from passenger vehicles, including utility vehicles, whose domestic sales have grown at an average 12 per cent in the first four months of this financial year.
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Yet, most car-makers, while parting with sales data, find it necessary to lace it with explanations.
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So, Honda, which is expanding capacity, would tell you that its plant is in a bit of a mess right now. Sections of it have been broken down to extend assembly lines and trucks are coming in and going out all the time. Hyundai talks of export commitments affecting its sales in the domestic market. Ford India refuses to part with model-specific sales.
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The truth is that the double-digit growth is a rouge that hides a serious affliction that can pull growth down in the coming months.
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The growth is fuelled by models that were launched in recent months and therefore do not have a base month figure to be compared against. Every unit sold adds to growth. On the other hand, the mature models, which have been the bulwark of car sales over the years, are doing abysmally.
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An average 116,000 passenger vehicles have been sold in each of the first four months of this financial year. The mainstays are three workhorses "" Maruti Udyog's Alto, Tata Motors' Indica and Hyundai Santro "" which together pooled in 40,000 a month. The growth of these is critical to industry growth. Worryingly, the first two have grown at under 2 per cent while the third has declined at just under 7 per cent.
Sales of older models in April-July 2007 | (year-on-year, in %) | Honda City | -19.81 | Honda Civic* | -29.55 | Hyundai Santro | -6.60 | Hyundai Getz | 3.20 | Hyundai Accent | -60.00 | Tata Indica | 1.30 | Tata Indigo | -10.00 | Maruti Alto | 1.90 | Maruti 800 | -9.00 | Maruti Esteem | -14.00 | Ford Ikon | -37.30 | Ford Fiesta | -5.00 | Fiat Palio | 188 | General Motors Aveo | 25.29 | *July only |
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The show put up by mature sedans is no better. Maruti Esteem, Tata Indigo, Ford Ikon and Hyundai Accent registered a decline. Even Honda City, the customer's darling among mid-size sedans till recently, saw its sales fall 20 per cent in April-July.
Sales of new cars in April-July 2007 | BRAND (LAUNCH) |
In Nos. | Logan (April 2007) | 8059 | Spark (April 2007) | 6085 | SX4 (May 2007) | 9435 | Zen Estilo (December 2006) | 13430 | Hyundai Verna (October 2006) | 9302 | Source: Industry figures |
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Growth has come from vehicles launched over the last 12 months, whose number is an extraordinary 20. Among them, the high-volume ones are Maruti's new sedan SX4, its stable mate Zen Estilo, Mahindra Renault's Logan, General Motors' Chevrolet Spark and Hyundai Verna, which together sold an impressive 46,376 units in April-July.
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General Motors Aveo contributed heavily to growth as its sales grew 25.29 per cent. But it had help in the form of Aveo UV-A, the hatchback version launched in December last year, which pooled in more than half of Aveo sales in April-July.
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Fiat Palio registered 188 per cent growth, boosted by the launch of a new 1.1 litre version that is eligible for lower excise, after-sales support from Tata Motors and an extremely low base in the corresponding period.
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In the coming months, as the base month phenomenon begins to kick in for these models, and if the mature models continue to be sluggish, car sales growth will surely plummet. It will not help matters that the last financial year witnessed a scorching 22 per cent growth in sales, setting the corresponding base unusually high.
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Going by numbers, it does not take too long for new models to lose their shine and for their sales to decline. The wake-up call has already come in the case of Honda Civic. Launched in July last year, it had been boosting Honda's sales since then, until last month, when the base figure kicked in and the sales declined by nearly 30 per cent. Ford's Fiesta, launched about two years ago, saw its sales drop by nearly 5 per cent in April-July.
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"Growth is coming primarily from new models. The mature models in the industry are not growing at that pace. The second half of the last financial year (when new models begin to hit the market) had a much higher sales base. That will make it that much more challenging for the industry to grow significantly in the second half of this financial year," said Rajiv Dube, president, passenger car business unit, Tata Motors.
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A market that derives growth only from new launches is not a happy one. Models that have delivered growth for years have stopped doing so and new long-term bets are not emerging. On the contrary, some of the new launches are losing sheen too quickly for comfort. If the new models fail to sustain industry growth, it will deal a setback to the manufacturers. For, these are not merely variants of existing models or platform extensions, which can be done with relatively low investment.
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Logan, SX4, Verna, Estilo and UV-A are new to India. Spark was taken from Daewoo, but has an engine different from Matiz's and General Motors spent years bringing it to the market. The diesel Swift has the petrol Swift's body, but an entirely new engine. Manufacturers do not give model-specific investment, but it will presumably be high in the case of the recent launches and its recovery would require sustained good performance by the models.
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Maruti, which launched the diesel Swift, Zen Estilo and SX4 in the last few months, has managed to pull the industry average up by registering monthly sales growth in high double digits. It has also benefited from an employee referral scheme, a scheme for vendors and a panchayat scheme for rural areas.
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"We anticipated the slow-down and took recourse to innovative schemes. Last year was driven by excise reduction and reasonable interest rates. However, the excise effect has neutralised and interest rates have gone up. It really affects compact car customers which have the largest volumes," said Jagdish Khattar, the company's managing director. Ominously, the innovative schemes are ending this month. After that, says an insider, "We will also begin talking of capacity constraints and export commitments." |
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