Cry of the Automakers

Auto sales are not encouraging even in this festive season. Massive discounts and even new models have failed to increase the footfalls in the showrooms. The sector claims that volumes touched the two-decade low in July and is set to dive down further. Demands have remained subdued and according to the manufacturers like Maruti Suzuki, Hyundai, Tata Motors and Mahindra & Mahindra there has been a double digit fall in dispatches to the dealers.

The commencement of the festive season with the Ganesh Festival followed by Navratras has not stimulated the demand. Maruti Suzuki continues to suffer from a sustained crash in demand. The Company’s volumes fell 86% in August 2019 to around 98000 from around 145000 in the same month last year. No wonder Maruti Chairman is crying hoarse about the slowdown. The head of sales of the South Korean automaker Hyundai too said “the pain continues to haunt” and the footfalls in the show rooms have become scarcer. Overall the volumes have been negative. He came out with a new perspective that the sentiments are down despite two new entrants – South Korean Kia Motors and the British MG Motors – in the market. The two neophytes, however, have a strong waiting roster and are likely to eat into the market of the existing brands. Both the brands are expected to market their products at more than Rs.10 lakh. These may, therefore, eat into only the up-market segment, leaving the bread-and-butter segment untouched where sales refuse to pick up.

For that RC Bhargava of Maruti Suzuki provides supposedly cogent answers. According to him, cars are getting expensive and are no longer affordable. Even the cheapest model in the Maruti stable, the Alto 800, has faced a drop of 50% in demand. He says that the man who wants to graduate to a four wheeler from his two-wheeler finds the former has gone up and away – beyond his reach. Bhargava seems to suggest that the slowdown is only partly true. He feels, there are numerous other factors that seem to be at play among which mobility-sharing is certainly not one.

According to Bhargava, the factors like stricter safety and emission norms (BS VI), enhanced insurance costs and higher road taxes in several states have depressed the sentiments. He also said that at a time when automobile sales are at a historic low the hike in the taxes on petrol and diesel in addition to higher road taxes and registration charges has not helped matters.

One cannot perhaps agree with him when he says that the Indian car buyer is not like the European or the Japanese buyers the per capita income of whom is far higher. But, when it comes to regulating the system everybody wants the best regulations which push up the unit prices making them unaffordable. He feels the affordability of a product has to be seen in the context of Indian incomes. One might, therefore, ask whether to make vehicles affordable in India the government should allow manufacture of products that are shoddy, even those that are made by the foreign manufacturers who have set up shop in this country? How long are we going to be left behind advanced versions because of our low income? In that case we might as well revert to bullock carts or horse-driven carriages.

Even the argument that the price of the entry model too has gone beyond those who contemplate graduating from a two wheeler to a four-wheeler cuts no ice. Bhargava’s own Maruti Suzuki discontinued manufacture of the former entry level vehicle Maruti Suzuki 800 presumably for lack of demand. Even the production of Tata’s Nano that was specifically meant for this very segment had to be discontinued for severe attrition in its demand. Indians are an aspirational lot, they were more so till before the slowdown hit the country. Few, therefore, would like to be seen in a Maruti Suzuki 800 or a Tata Nano. The fall in demand of Alto 800 could well be because it is now identified as the entry level vehicle from the Maruti stable in which many on-the-up individuals feel shy to be seen in. We Indians keep a keen eye on others, especially our neighbours, so that we show off ourselves as better than them. It is nothing but a proclivity towards one-upmanship.

Although with the prevailing frequent jams on urban roads one tends to think that the downturn is because probably the country has reached a point of saturation in so far as personal vehicles are concerned. But that is not true as, at 22 persons per thousand owning cars (in 2016), India is far behind Europe and America where car ownership is close to almost hundred percent. But if and when we attain the vehicular saturation as seen in the US, God alone knows what will happen to our mobility. People would not be able to go about their businesses, policemen would not be able to chase criminals, fire services would not be able to reach the site of the fire and people are likely to remain rooted wherever they happen to be for reasons of massive traffic jams. Obviously, we are presently better off though now and then we come across news of jams here and there. One feels the country will do well to shun parity with the US or European countries in terms of number of cars per thousand heads. The urban scene in most of these countries is revamped and is generally a couple hundred years old whereas even the recently built roads in our cities cannot take so many automobiles – big or small. These constraints have to be acknowledged and not ignored.

We have passed through a severe downturn in the automobile industry and yet one sees reports of high-end luxury cars costing a crore or so descending on the market. A recent report said the Swedish automobile giant Volvo is putting out two luxury sedans/SUVs for the well-heeled costing more than a crore. As already stated Kia and MG Motors have accumulated a healthy waiting line-up. Reports have been seen of Mercs, Audis, BMWs of the luxury segment doing well. Quite clearly, it is the bread and butter segment that has been hit hard.

But that too is likely to witness a turnaround soon as green shoots are now visible. The farm sector is progressively showing greater strength after a very generous monsoon and, hopefully, it will stimulate the entire economy triggering a general revival. One cannot forget that it was the automobile sector that the country rode on to a double digit growth rate. Surely the growth will return; it is only a matter of time. As economists say downturns and upturns are cyclical and, generally, one follows the other, mostly after reasonable gaps. 


More by :  Proloy Bagchi

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