Auto industry is sitting today on high idle capacity: Ravi Kant7 min read . Updated: 28 Aug 2009, 11:08 PM IST
Auto industry is sitting today on high idle capacity: Ravi Kant
Auto industry is sitting today on high idle capacity: Ravi Kant
Tata Motors Ltd managing director Ravi Kant, who is also the outgoing president of industry lobby group Society of Indian Automobile Manufacturers (Siam), said the auto industry is currently sitting on high idle capacity. He also said in an interview that most serious external factors for the sector are the economy and infrastructure spend, but there has been a greater understanding between the government and the industry. On his company’s small car TataNano, Kant said that the demand for the small car was huge but the production was limited. However, he added that Tata Motors would by mid-2010 produce Nano at its full capacity of 20,000 units a month and he was not worried about order cancellations. Edited excerpts:
You’ve probably been spearheading Siam at the time when the situation for the auto sector has perhaps been the worst that the country has seen in a long time. As you leave this chair, are you cautiously optimistic? Are you feeling more confident about the situation as it stands?
Yes, I think so. Last year was quite bad and especially Q3, (the third quarter) which is the October-December quarter, the industry went through some very wrenching times. But hopefully now things are working out somewhat better.
There are still some segments like commercial vehicles that are under stress. But two things have come out quite clearly. One is I think the government has come out very strongly and has worked with industry, has listened to the woes of the industry. It is not that we have just been asking for anything. We have been giving a lot of logic and there has been a very open and frank discussion and a lot of items in the stimulus packages one and two were announced, which were beneficial to the industry. So I think there has been a greater amount of understanding between industry and government during this period, which I think is a very positive development, if I may say so, out of this crisis.
The other is I think like in any crisis, the industry then begins to look at things it would normally not do. Internally, at cost and new products and things like that, and I think a lot of work has been done there as well, which will now show up as the market begins to expand.
In the long run, I think the auto industry has a very strong future as far as India is concerned, no question about that. The automotive mission plan, which was unveiled by the Prime Minister two years ago, has really all the strong points and I personally have no doubt about it that we will see a very bright future.
Would you envisage single-digit growth till the end of this year and perhaps double-digit growth only as far as 2010 is concerned? Would that be your prognosis given the situation on the ground?
Normally, I personally don’t hazard a guess and we don’t give that kind of futuristic thing especially the more recent things, because if I give a complete thing for the auto industry it will not be representative.
If you’d like to break it down into different segments—two-wheelers, passenger vehicles, commercial vehicles—how would you like to break it down?
I would say the ones that are more consumer oriented, they are going to be doing well.
Which means passenger vehicles, cars and two-wheelers?
Two-wheelers and things like that, and which will begin to catch up. And the ones which depend a lot on infrastructure spending, a lot on GDP, IIP (index of industrial production) and export and import, I think that is going to take some time.
You yourself at Tata Motors have begun to see a tame turnaround as far as commercial vehicle (CV) sales are concerned. What is the situation on the ground as far as CV sales are concerned? Do you think it is sustainable? Is it likely to improve further from these levels?
I think the sales have been improving that way, if I say from a more negative—it was -70% and now it is -30%, -20%, especially in medium and heavy trucks segment. As far as the light commercial vehicle is concerned, I think it is beginning to show growth. But you have to understand one thing, in light commercial vehicles the whole growth is actually driven by Ace, manufactured by Tata Motors, and because of that the whole light commercial segment is showing an increase.
We do hope that it will continue because if you see how the urban and the rural areas are coming together and how the economic activity is going around the country. There is still some time to go before it comes back to real growth, I would say.
One of the challenges the sector grappled was with high input costs and that completely changed over last year. If you were to look at external factors, what do you think the auto sector has to grapple with in terms of the most serious external factors?
The most serious factor I would say is the economy itself because at the end of the day, if the economy is doing well then everything gets a boost and each segment reacts differently to it. The other is spending on infrastructure because as (road transport and highways minister) Kamal Nath has said, “You guys produce vehicles but it’s my job to make roads". I think he should have first said he does the roads and then we produce vehicles. But, in fact, it has to go hand in hand. So if the government is taking a leap forward saying that they will make 20km of roads per day, I am sure the auto industry would not be wanting to make investments. Out of nearly Rs80,000 crore investment that was envisaged, Rs50,000 crore has been already invested. So actually the auto industry is sitting today on high capacity, and therefore, as soon as the demand picks up, they will be able to supply it in no time at all. Thus the idle capacity is certainly causing major drag on the industry and profitability and that can only be salvaged if the demand picks up.
You are meeting perhaps all of the industry at Siam meet. What is the sense you are getting? Have the liquidity concerns eased, have their funding concerns eased, working capital concerns eased? What is the sense you are getting now that you been speaking with CEOs from everywhere in the sector?
I would say about a year ago we were in great difficulty, no question on that. It was as if the entire liquidity system had frozen and people were finding it very difficult to get funding, especially small and medium enterprises. Banks had withdrawn financing of vehicles to consumers and some very big ones had withdrawn so suddenly and that created a huge gap and that took quite some time for the gap to be filled in. But now fortunately it has been filled in with many more players and surprisingly players from public sector banks have come in a very aggressive manner led by SBI (State Bank of India) itself and I think they have done a remarkable job in filling the gap and taking over all the slag and actually moving the whole thing forward.
One of the other things which we saw last year in the industry was that a lot of global alliances got struck such as Renault SA and Nissan Motor Co. Ltd with Mahindra and Mahindra Ltd, Bajaj Auto Ltd and Nissan with Ashok Leyland Ltd. Do you see a lot more of that happening in India? Also, in terms of acquisitions, do you see Indian auto firms stepping back into the market and looking at acquisition?
Not immediately, but I think give it one more year, when people begin to feel quite confident, now at least for the next five-six years, it is going to be the upside in the growth cycle. Those things will come back because ultimately those are required for growth because you just can’t grow by organic, means, you need to have inorganic growth, partnership to grow because you suddenly cannot create technology, you need to acquire it. So all these things will begin to happen as the growth story begins to unfold again. People will find ways and means of doing it and it’s the same things like M&A, tech partnerships and other things and steps to make this happen.