The wheels came off India’s much-vaunted car market in the year to 31 March, with sales falling 6.7%, the first drop in 12 years. Although the industry lobby group predicted a 3-5% growth in 2013-14, most analysts and experts aren’t sure things will turn around that soon.
Passenger car sales declined to 1.89 million units in 2012-13 from 2.03 million a year earlier, the Society of Indian Automobile Manufacturers (SIAM) said on Wednesday, as new launches, discounts and freebies failed to attract customers in a depressed economy and increasing fuel prices.
India’s passenger car market shrunk the last time in 2000-01, when sales fell 7.73% over the previous year.
Interestingly, total passenger vehicle sales grew 2.15% to 2.69 million units, with people buying more sport utility vehicles (SUVs) in 2012-13, a reflection of both changing tastes and the lower price of diesel, which powers most of these vehicles.
Sales of truck and buses fell 2.02% in the year, mirroring a slowing economy, although sales of small pickups rose.
The entire automobile market, including scooters, motorcycles and three-wheelers, grew 2.61% in 2012-13. SIAM expects the industry to grow 6-8% in 2013-14, largely on account of an expected cut in interest rates and an economy that will expand faster than the 5% at which it is believed to have grown in 2012-13. The government expects the economy to grow by between 6.2% and 6.7% this year.
India’s industrial output probably shrank 1% in February, according to a Bloomberg survey before data due on 12 April. The Reserve Bank of India reduced its policy rate by 25 basis points (bps) each in January and March. The next review is scheduled for 3 May. A basis point is one-hundredth of a percentage point.
In March, sales of cars, commercial vehicles, and scooters and motorcycles declined in India. Car sales plunged 22.5% compared with March 2012 to 180,675 units. In the same period, overall vehicle sales fell 7.76% to 1.49 million units.
In contrast, passenger vehicle sales in China rebounded in March due to the success of some entry-level cars and new model launches. According to industry body, China Passenger Car Association, total sales of passenger cars, SUVs, multi-purpose vehicles and minivans jumped 15% over a year ago to 1,459,095 units in March.
An expert said growth will return to the Indian car market only in 2014-15.
While the next few months of 2013-14 will continue to see a decline in sales, an interest rate correction in the second half of the year will bring back some momentum in the market, according to Rakesh Batra, national leader (automotive sector) at audit and consulting firm Ernst and Young. Still, he warned, growth will return only in 2014-15.
“It is time for the Indian auto industry to change lanes,” he said. “I expect 2013-14 to be a difficult year, and the industry should use this time to reconfigure business models and operations as we come back to a growth-oriented market from 2014-15 onwards.”
Batra said the ongoing slowdown will continue to put the profitability of auto component firms under pressure. “The bottom line of the auto makers and component suppliers is likely to be under pressure as they not only bear the burden of higher input costs, but also offer heavy discounts, innovative financing and buy-back schemes to drive sales,” he said.
Indeed, that would seem to be the consensus estimate among analysts.
“We expect a small 30 bps y-o-y (year-on-year) dip in Ebitda margins. On lower profitability at two-wheeler and CV (commercial vehicle) companies, we expect net profit to dip 32% y-o-y,” Rohan Korde and Girish Solanki of Anand Rathi Research, a Mumbai-based broker age firm, wrote in a report on Wednesday. Ebitda refers to earnings before interest, taxes, depreciation and amortization, a measure of operating profit.
In 2012-13, prominent companies such as Maruti Suzuki India Ltd, Tata Motors Ltd and Hero MotoCorp Ltd had to cut production at their respective plants, which impacted their profitability.
SIAM, whose forecast was proved wrong at the end of every quarter last fiscal, said the “probability of holding the current automobile forecast for the year 2013-14 is two in three (2/3rd)” as this is based on combined judgmental view from various experts.
“The year has been bad and that’s visible. Any factor that impacts consumer buying behaviour has not been positive,” said S. Sandilya, president of SIAM. “But whatever has happened is due to larger problems in the economy. There have been policy changes and we are hopeful that they will be executed in time.”
However, he cautioned that any negative circumstances such as failure of the monsoon, policy inaction and political uncertainty may lead to significant deterioration to economic recovery and consumer sentiment.
“Under such circumstances, these forecasts may not hold true,” Sandilya said.
“We expect a slight improvement in passenger car sales. But this may change if some of our assumptions don’t come true. The current slowdown will continue for the next six months,” added Pawan Goenka, president (automotive) at Mahindra and Mahindra Ltd.
India’s largest car maker Maruti Suzuki has said that growth in the domestic car industry may languish in single digits for the next three years, Mint reported in December.
Maruti’s sales grew 4.44% to 1,051,046 units last fiscal. Its rival Hyundai Motor India Ltd, which posted a decline of 1.33% in sales, said it will grow at 5% in the current fiscal and expects the growth to happen from the second half of the fiscal.
“We hope for a good monsoon that would create some demand ahead of the festive season. In the current macroeconomic situation, we do not expect to grow at more than 5% this fiscal,” said Rakesh Srivastava, senior vice-president (sales and marketing) at Hyundai Motor India.
The industry is pinning its hopes on new models, at least some of which have generated some excitement.
On 11 April, Honda Cars India Ltd will launch its first diesel car in India, Amaze. In June, Ford India Pvt. Ltd is expected to launch a compact SUV, the EcoSport. The new models are likely to be priced at Rs.5-7.5 lakh and Rs.6-10 lakh, respectively.
Ordinarily, these launches would have been just one of the around 25 models that car makers introduce every year. With sluggish economic growth, these models are among the few new ones that are likely to be launched in the current quarter.
And it’s possible that they eat into the share of existing models rather than attracting new customers, said Vishnu Mathur, director general of SIAM.
The slowing market also resulted into a change in the status quo in various segments.
While Mahindra inched closer to surpass Tata Motors to become the third largest passenger vehicle firm by sales, Honda Motorcycle and Scooter India Pvt. Ltd (HMSI) overtook Bajaj Auto Ltd as India’s second biggest scooter and bike maker.
HMSI sold 2.61 million units in the 12 months ended 31 March, an increase of 31% from a year earlier, as it added new models and dealerships. In contrast, Bajaj’s sales fell 4% to 2.46 million units in the same period, according to data from SIAM.
While Tata Motors’ sales fell 15.32% to 314,464 units, its rival Mahindra sold 310,707 units to grow 26.46% over a year ago.
Bloomberg contributed to this story.