Mumbai: The year 2014 will be remembered as the year when a glimmer of hope came back to the auto sector after the decade’s worst performance in the previous year, even though the recovery was restricted to a few firms and models while others continued to struggle. A more broad-based recovery in 2015 will depend on whether economic growth accelerates, interest rates ease and fuel prices remain at relatively low levels, said auto makers and analysts.

“There’s no real pick-up in the economy," said R.C. Bhargava, chairman of car market leader Maruti Suzuki India Ltd, adding that all hopes are now on the budget, which is expected to announce some big reforms to improve sentiment and sales. “Other than that there aren’t any good indicators," said Bhargava. He, however, added that the softening of fuel prices and a likely cut in interest rates will lower cost of ownership and spur small-car sales that have been taking a beating for two years in a row.

Car sales fell in six out of the 11 months to November, although cumulatively sales expanded 1.5% to 1.6 million units from a year earlier. The growth was driven largely by India’s top three passenger car makers Maruti Suzuki, Hyundai Motor India Ltd and Honda Cars India Ltd. Others including home-grown auto makers Mahindra and Mahindra Ltd and Tata Motors Ltd saw sales decline in most months. The current year was also a year of muted or declining sales for the local arms of General Motors Corp., Volkswagen AG and Ford Motor Co., among others.

Even for Maruti, which sells one of every two cars, volumes were largely driven by the newer models such as the Celerio hatchback and the Ciaz sedan. Sales of the company’s so-called mini-cars, which include the WagonR and the Alto, either remained flat or declined, showing that first-time car buyers are still reluctant to come into the market.

This could change next year, said Kumar Kandaswami, senior director, Deloitte Touche Tohmatsu India Pvt. Ltd. “We expect sales of entry-level sedans and hatchbacks to rebound next year and do disproportionately better," he said, explaining that pent-up demand and the falling cost of ownership due to lower fuel prices could push up sales.

Consumer price inflation slowed to 4.4% in November, while wholesale price inflation fell to zero, prompting calls for lower interest rates. The Reserve Bank of India (RBI) in its 2 December policy had noted that it may consider cutting rates in early 2015 if inflation eases as expected.

Rakesh Srivastava, senior vice-president, sales and marketing, at Hyundai Motor India, expects the car market to end the current calendar year with sub-2% growth. “It has been a challenging year," he said. The growth in the current year was not all-inclusive and was largely led by new models and lower excise duties, added Srivastava.

On 30 June, finance minister Arun Jaitley extended an excise duty cut, announced by his predecessor P. Chidambaram, for automobiles, capital goods and consumer durables until 31 December.

During the current year, Hyundai launched the new i20 and the new Santa Fe, among other models. The company plans to launch models in the sports utility vehicle (SUV) market, where it has been conspicuous by its absence.

“The sales trend this year has been fluctuating month-on-month," added Jnaneswar Sen, senior vice-president, sales and marketing, at Honda Cars India, while referring to the broader car market.

India’s fourth largest passenger car maker saw sales increase by high double digits in most months following new model launches such as the new-generation City sedan and the Mobilio multi-purpose vehicle. Next year, Honda will introduce the new-generation Jazz, said Sen. “A lot next year will depend on whether the government retains the current excise duty structure," Sen added.

In contrast, Mahindra and Mahindra, the utility vehicle market leader, continued to see sales contract in the domestic market in 2014. Its passenger vehicle sales dropped 11% to 177,515 units in the 11 months to November because of the absence of a model in the compact SUV market. In 2015, the company plans to correct this by launching at least two new models in the compact SUV segment in the next calendar, Pawan Goenka, executive director and president, farm equipment and automotive sectors, told reporters in November at a press meet to announce the company’s September quarter earnings.

The deregulation in diesel prices, announced in October, is expected to be yet another factor to watch as companies reassess their product and capacity plans in light of the new fuel policy.

According to analysts, the changed policy is likely to lead to an increasing acceptance of petrol vehicles across different customer demographics and vehicle segments.

“This will lead to auto makers reassessing their product strategy in the longer term," said Mohit Arora, executive director at JD Power Asia Pacific, in a press meet last month.

“It’s likely to lead to significant turbulence in the short term in the form of model mix shortages, underutilized capacities and inventory build-up, among a few. Going ahead, manufacturers will need to persuade customers to purchase diesel based on its merits rather than just cost of operation, he added.

An additional worry that could creep up in 2015 is sluggishness seen in rural sales recently. Lower food prices, a patchy monsoon and lower rural wages are taking their toll on demand for everything from tractors to toothpaste in rural India, Mint reported on 25 November. If this trend continues, auto makers may see stronger revival in urban sales as opposed to rural sales. Still, auto firms say they remain bullish on rural India even as demand for two-wheelers in the region have shown signs of tapering off in the last few months.

A policy on auto recall, part of the new Motor Vehicles Act, which is expected to be tabled in the ongoing winter session of Parliament, is yet another important policy announcement that is set to change course with regard to product development, safety and quality parameters. for the auto makers and their suppliers in the months ahead.

India currently doesn’t have a policy on recalls. In June, the automobile industry body announced a voluntary code on recall. As part of this, over 600,000 vehicles have been recalled by auto firms since the code came into effect in July 2012.

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