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In a depressing scenario, exports impress

With two straight years of demand slowdown, the Indian automobile industry is still clueless about recovery.

While the industry along with the rest of the economy is keenly awaiting the kick-start of reforms post general elections, the recent excise duty cut has provided some respite. Aided by both duty cut and positive sentiments created at the Auto Expo 2014, sales of passenger cars saw some improvements over the past few weeks, while industry continues to see a bleak outlook for 2014.

 “The excise duty cut was a welcome step taken by the government to revive sale. However, other factors like high interest rate, falling rupee and unstable fuel pricing still loom large in the market,” said N Raja, Senior Vice - President, Sales and Marketing, Toyota Kirloskar Motor Ltd.

 The vehicles launched during the Auto Expo could also help lure some customers back to showrooms. This was particularly true of cars launched with automated manual transmission variants in the low-price segment. Maruti and Tata Motors launched cars that have seen a good response from customers.

The primary cause for sluggishness in the market is prolonged inflation, rising fuel prices and high interest rates, resulting in deferment of buyers’ purchase decision. In the last 10 months, petrol price has gone up by about Rs.10 per litre and diesel price by about Rs.6 per litre, while interest rates continue to prevail at higher levels.

 

New car launches help…

In passenger vehicles, undeterred by the slowdown pressures, vehicle markers attempted to maintain some momentum with a slew of new launches and it proved to be helpful. Some select models, particularly in the premium categories, have attracted buyers. But, the industry didn’t succeed in luring legions of new consumers who are now clamouring to drive their first four wheelers. But, there was a bright spot as rural segment provided some decent demand that helped the carmakers offset the severe sales decline in urban centres.

 Meanwhile, during this sales slump, there is also shift in position of companies in the car segment. Japanese auto major Honda Cars India has emerged as country’s third largest car brand after Maruti and Hyundai, aided by strong volumes of two new models – diesel powered compact sedan and the mid-size sedan Honda City.

Its compact sedan Amaze, launched in April 2013, has emerged a strong contender for segment leader Maruti Swift Dzire. The other model new Honda City also regained its top slot in the mid-size sedan segment and has been the segment leader by volumes during January and February.

 The UV segment that was marching ahead with a strong double digit growth till a year ago slipped into negative growth lane around middle of current fiscal after the announcement of duty hike for Sport Utility Vehicles (SUVs) in April 2013. However, this segment is set to see some shift in market dynamics as compact SUVs have become the flavour and several firms are queuing up to roll out vehicles in this category in the coming months. The size of UV segment in the country is about half a million units annually. Presently, Mahindra continues to be the market leader, followed by Toyota, Maruti, Renault and General Motors.

 

CV – sequential improvements seen

However, the current downturn has brought nightmare to the commercial vehicle industry in the country. Despite offering unprecedented discounts to new purchases, CV makers couldn’t arrest the drop of their double digit truck sales due to sharp fall of activity in the manufacturing and mining sectors.

 “Commercial vehicles continued to remain under pressure as a result of the decline in industrial activity. However, a sequential improvement for a fourth consecutive month indicates a possible bottoming out of the weak demand cycle. The LCV segment also under pressure as only the pickup sub-segment is showing resilience to the slowdown.

 

Scooters zoom ahead

Presently, the only segment that continues to buck the slowdown trend is scooters, while motorcycle growth has been volatile. Over the last three years, scooters segment has seen robust growth with a CAGR of 26 per cent. In 2012-13, scooter volumes were a tad short of three million units, but are likely to go well past this level in 2013-14 while accounting for about a fourth of the domestic 2W industry’s sales volumes, almost doubling its share in the last five years. The major factors that drive the volumes are launch of new models and growing appetite for gearless scooters among urban women and the current low penetration levels.

 The motorcycles segment, which accounts for over 70 per cent of industry volumes, remains the primary weak spot. In terms of market share, Hero MotoCorp continues to remain the market leader with a share of 33.5 per cent (during 11 months of FY14) in overall two wheeler market in the country, followed by Honda Motorcycle & Scooters India at 19 per cent share, Bajaj Auto at 11.5 per cent share and TVS Motor at 9.5 per cent.

Exports –silverlining in a dark cloud

Despite a couple of bad years that have inflicted damage on vehicle OEMs, there is still a silver lining. Vehicle exports from India have been robust during this slowdown hit-years. Many categories that include cars, UVs, trucks and bikes have reported good growth in exports during the current fiscal. Overall passenger vehicle exports have seen a rise of 6.44 per cent during the 11-month period.

Interestingly, ‘Made in India’ car story is getting stronger and stronger with a few of global auto brands striving to ship their India-built sedans to overseas markets. Weak rupee and slump in domestic market have forced many players to look aggressively at export markets.

Though it has been struggling with falling volumes, Japanese auto brand Nissan continues to sell India-built cars in other markets in large numbers. It has recently displaced Maruti to become the second-largest passenger car exporter from India. Hyundai continues to be the number one exporter.

 

Hyundai at the top...

“Maruti’s exports were hit due to some change in norms in its Algerian market, while several African countries have imposed non-tariff barriers by signing a preferential import duty agreement with European players, according to a report of HDFC Securities Ltd.

 In commercial vehicles, medium and heavy duty truck exports have gone up, while exports of bus and light commercial vehicles have been hit. All the three major players in CVs - Tata, Ashok Leyland and Volvo-Eicher - have stepped their truck exports due to depressing sales in domestic market.

Exports will continue to be a key focus area for automakers till the domestic market shows some signs of recovery and everybody feels the recovery is at least two quarters away.

Thus, the current fiscal 2013-14 proved to be yet another disappointing one for the domestic automotive industry with weak demand scenario. The overall industry volumes include cars, utility vehicles, commercial vehicles, three wheelers and two wheelers, during the 11-month period were up just three per cent with positive growth only two wheeler segment.

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