Apart from the sluggish demand, the sector had problems in the other front too, with major rift between the partners playing spoilsport in some of the leading joint ventures in this sector.
However hopes are not lost totally, if one see the performance of the two wheeler industry, especially in the second half. With the formation of stable government at the centre at last, one can expect the economy to be back on rails. In that case the first sector to be benefit under this will the automobile industry. However it has to wait till the second half of 1998-99, as it will take atleast some months for the impact of the policy decisions to be felt.
With the initiation of economic liberalisation in 1991, automobile sector moved into top gear in the consequent years. Freeing of automobile sector from the clutches of licence raj in July 1993, automobile sector registered impressive growth of 24 per cent in 1994-95 and 25 per cent in 1995-96.
Amongst the different sub-segment under automobile, two wheelers recorded negative growth of 7 per cent in 1992-93. However with improved disposable income and standard of living, it made a turnaround in the following year with growth of 17.48 per cent. In 1994-95 it consolidated its turnaround and stepped up its growth to 25.21 per cent.
On the other hand, intense industrial activity enhanced the demand of commercial vehicles during this period. The heavy commercial vehicle segment which registered negative growth of 21 per cent in 1992-93 made a turnaround with growth of 13 per cent in the following year. However it hit an high in 1994-95 with record growth rate of 36.8 per cent.
Having set such a high standards the automobile sector failed to sustain it in the following years. Its growth dropped to 14 per cent in the year 1996-97 which threw light on things to follow. In 1997-98, the year marked by recesssion and liquidity crunch, industry's growth remained stagnant at 0.5 per cent.
The heavy commercial vehicle segment (HCV) slumped with a substantial 38.46 per cent decline in its sales in the first 11 months of 1997-98. HCV sales came down to 80,225 units against 1.30 lakh units in the corresponding period previous year.
Here fortune of commercial vehicles are heavily dependant on the overall industrial activity. The fall in the production in the manufacturing sector and drop in movement of goods meant doldrums for the commercial vehicle sector. With the fall in demand, the freight rates are softened a lot. In addition the boom period, that is 1992-93 and 1995-96 which encouraged the fleet operators to go for major expansion also caused the demise of them.
With the slow down in industrial activity the fleet capacity exceeded the demand by 20 per cent. With the rise in fuel prices and rates of truck financing problems of the operators further compounded. While the over capacity come in the way of passing on the increase in expenditure to the customers, they had been even forced to under cut to sustain the business volume.
The worst to be hit by this was Telco, the leading manufacturer of HCV in the country. During the first eleven months of 1997-98 Telco's HCV division registered negative growth of 42.65 per cent. The mounting inventory forced the company to slash down the production in a major way in the second half of 1997-98. Even this proved to be of no use, in bringing down the gap between the production and sales. Scenario for the other leading player, Ashok Leyland also remained the same. Its HCV division recorded negative sales growth of 27.43 per cent during this period.
Light commercial vehicle (LCV) fared comparitively better than the HCV segment. As per the Association of Automobile Manufacturers Association (AIAM) figures, LCV segment registered sales decline of 21 per cent. In the first eleven months of 1997-98 LCV sales dipped to 57,450 units against 72,721 units in the corresponding period previous year. Telco's LCV division registered sales decline of 22.5 per cent where as the drop in LCV sales of Ashok Leyland was higher at 30 per cent in this category.
In a year marked by major tussle between the collaborators, the passenger car segment ended the first eleven months of 1997-98 with growth of 0.03 per cent. Sales of the passenger car segment moved up to 3.76 lakh cars, that is up by a mere 13,027 cars against 3.63 lakh cars in the corresponding period in 1996-97.
Despite a major rift between the government and Suzuki, joint venture partner in Maruti, the company registered five per cent growth in sales. As per the AIAM data Maruti consolidated its strong hold in this sector to 82.54 per cent, not withstanding the intense competition from the flurry of new entrants in tie up with multinationals. Its performance has been overshadowed by the tussle between the government and Suzuki.
For the Korean major, Daewoo the year is a forgettable one. Despite major slash in the price of its Cielo car, it could not sustain the sales. Daewoo's sales dropped by 41 per cent and that of Hindustan Motors came down by 14 per cent. Daewoo for the first time, is set to end up in red. In comparison the other transnationals like General Motors and Mercedes Benz improved their sales by 16 per cent and 64 per cent respectively.
With increasing number of differences arising between the partners that is like Peugeot and Doshi's in their PAL- Peugeot and Tatas and Mercedes Benz in their joint venture, brakes are applied atleast temporarily in this category.
In the two wheeler sector, with the leading player Bajaj's suffering a dip in its scooter sales by 11.8 per cent, sales of this category came down by two per cent to 11.61 lakh scooters. In comparison the other players capitalised on the loss of Bajaj. Kinetic Honda registered 10.53 per cent sales growth, LML a growth of 13 per cent and TVS improved its sales by 30 per cent in the scooter category. The southern based TVS in that process crossed the Rs 1000 mark in turnover, which results in growth of 18 per cent.
The story of motor cycle sector is quite impressive. Motor cycles category gained at the expense of the other two categories like scooters and mopeds. With sales of 10.16 lakh motor cycles in the period between April 1997-February 1998 the sector grew by 15.17 per cent against the figure of 8.82 lakh motor cycles in the corresponding period previous year. Apart from its inherent advantage of being suitable for the worst road conditions in the country, this category is also immensely benefitted by the higher disposable income, under the new pay commission recommendations.
Here the impressive show of this category was lead by Hero Honda, which registered a growth of more than 50 per cent. It improved its market share from 26.9 per cent to 36 per cent. In comparison Bajaj's which managed only a modest growth of 2.8 per cent, witnessed drop in its market share from 31 per cent to 28 per cent. With sales drop by 22.3 per cent, market share of Escorts also came down to 15 per cent from 22.7 per cent.
Like scooters, mopeds category also could not catch up with the performance of motor cycles sector. Sales of mopeds dropped by 6.1 per cent. Here once again the major sufferer is Bajaj whose mopeds division witnessed drop in sales by 27 per cent.
In tandem with the heavy drop in sales of vehicles, the auto ancillary sector recorded negative growth of two per cent in 1997-98. This is in sharp contrast to the positive growth of 20 per cent attained in 1996-97. Except for those units which cater to Maruti, Hero Honda and TVS rest of the players in the auto ancillary sector is expected to witness major drop in their sales and profitability.
However all that is not negative about this sector, especially if one considers the performance of the two wheeler sector, particularly in the second half. Further, with the formation of the government at the centre at last, revival of the economy is certainly on the cards. And in that case automobile sector will be the first one to recover from its present blues, to speed ahead and regain its glory of the early 90's.
However the industry has to wait a bit further for recovery, to receive the positive impact of the policy decisions of the new government, which will take atleast six months. As such one can hope for the revival only in the second half of 1998-99. More than the sops in the form of excise duty cuts and slash in the import duty on the inputs the industry is in need of long and enduring policy for its progress. Industry friendly initiatives that could put the economy back on rails and investment in the infrastructure areas like roads will be key for the recovery of automobile industry. Especially for the commercial vehicle sector improved industrial activity and production can easily put it back on the path for recovery.
