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Indian automobile industry is surely on a high! Reporting a whopping 30% growth during the first four months of this fiscal, many auto majors are convinced about their long-term success in the domestic circuit. But is this boom really sustainable?
As the 10th Auto Expo kicked off on January 5, 2010 in New Delhi, a slew of new models were showcased by the global auto giants. Be it Volkswagen, General Motors (GM), Hyundai or Maruti Suzuki, almost all the companies were busy displaying a high level of innovation to catch the fancy of the Indian consumer. While the hatchback segment, in particular, saw the competition growing by many folds, the scenario wasn't really different in the other segments as well (For the uninitiated, products like Chevrolet Beat, Maruti Suzuki Eeco, Volkswagen Polo, et al, made their way into the Indian market taking the auto expo route).
In fact, as FY2009-10 approached its end, the Indian automobile industry was standing tall and smiling wide reporting a whopping 20% growth in the passenger vehicles segment with total sales standing at 1,949,776 units. Many industry watchers warned that the growth during the next year might take a beating because of the high-base effect. But, as the numbers for the April-July period (FY2010-11) flowed in they (including the players) were taken by surprise as the industry had filed a mind-boggling growth of more than 30% with total unit sales in the passenger vehicle segment standing at 7,56,659 units. 'The growth in the first four months came as a surprise to us as well as to the rest of the players. We were expecting just a 10-15 per cent rise in sales during this period,' Mayank Pareek, Managing Executive Officer ' Marketing & Sales, Maruti Suzuki India tells TSI. In fact, it's the result of this boom that the company today has an order backlog of about 15-20 per cent of monthly sales with most of the models in its portfolio running on a waiting period. Similar is the case with other auto majors who too are trying their best to meet this sudden rise in demand for their products. While the players are celebrating their success, there are critics who are still sceptical about the sustainability of this boom. They question whether this overwhelming response from the Indian consumer can continue for the whole fiscal or is it just a short-lived phenomenon for the industry?
According to the projections made by Society of Indian Automobile Manufacturers (SIAM), the car industry is expected to grow by 12-15 per cent this year. Going by the calculations made by the industry body, the passenger cars segment in India is expected to grow by around 10 per cent per month for the rest of the year. However, the industry officials are of a view that it may just be able to outshine the SIAM's projections this year. There is no denying to the fact that the whopping growth has taken many auto majors by surprise, but as they say, one should always look at both sides of the coin, there has been cases where auto manufacturers have faced the component shortage. For instance, Mahindra & Mahindra (M&M) recently suffered a production loss due to a shortage of components in the Indian market. 'The automotive division has faced an 8-10% production loss in last quarter due to the shortage of components in the industry,' agrees Pawan Goenka, President (Automotive and Farm Equipment), M&M. In fact, this delay in the supply of auto components has created a situation where auto majors are currently finding it very hard to meet the high demand in the market. 'Such growth was surely unprecedented in the Indian market and it has its own challenges," says Vinnie Mehta, Executive Director, Automotive Component Manufacturers Association of India (ACMA). Even the component makers are striving hard to match the level of pace. But it will take them some time before they reach that point.
'Though component shortage is the result of the high growth in the Indian market, it has surely disrupted the expansion plans of several auto majors,' says Arvind Saxena, Director ' Sales & Marketing, Hyundai Motors India. In fact, many industry officials are echoing this view, but they surely believe that as growth will moderate in months to come, component shortage as a problem will automatically find itself a solution. 'No doubt, several component makers are adding capacities at their end, but as the growth moderates, the problem will automatically get resolved,' agrees Vishnu Mathur, Director General, SIAM.
While the high level of growth has been a boon to many companies, it has also taken its own toll on established players. In fact, Maruti Suzuki saw its share falling below the 50% mark in its 25 year history (Currently, the market share of the company stands at 47%). Even its arch rival Hyundai Motors India filed a 2% fall in its market share and is currently holding close to 18% of the Indian passenger car market. 'In the month of July, we had a two week annual shutdown at our plant in Chennai. So, there was hardly any scope to scale up production in that particular month,' says Saxena.
However, these companies are really trying hard to regain their market share. 'We have a target to regain the 50% market share by the end of this fiscal,' Shinzo Nakanishi, MD & CEO, Maruti Suzuki India tells TSI. Notably, the company has recently launched the all new Alto K10, automatic A-Star and CNG technology in its five products (Alto, WagonR, Estilo, Eeco and SX4) to regain the 50% mark in market share. But products like Ford Figo, Chevrolet Beat, Nissan Micra and Volkswagen Polo, which are relatively new to the Indian consumer, have been an instant success in the Indian market and are giving tough competition to Maruti. In fact, Nano has also gained momentum in production at its Sanand unit and the company has so far sold close to 23,000 units in this fiscal. Tata Motors is targeting sales of close to 2.5 lakh units in FY 11. Other auto majors like GM, Ford, et al, have also been able to hit the right spot of the consumer's mind and hence are enjoying one of the best years in their Indian journey so far. 'Figo has been accepted very well by the Indian consumer. The high level of localisation in the product has empowered us to maintain a very aggressive price in its segment,' explains Michael Boneham, MD, Ford India.
However, on the other end, players like Honda SIEL, who are currently running on an ageing portfolio in domestic circuit, have not been able to cash-in on despite a high level of consumer sentiment. For the record, the company has sold close to 16,728 units in this fiscal, which is marginally down as compared to the 17,595 units sold by it in the corresponding period last year. While the City remains the flagship model of the company, other models like Jazz, Accord and Civic are having a tough time in the Indian market. 'Honda needs excitement in its portfolio at this moment. Almost all the models apart form the City are set for upgradation or replacement. Even the high price point of Jazz has emerged as a problem which has resulted in low volumes for the company,' says an automotive consultant on conditions of anonymity.
It may easily be recalled that the Indian automobile industry got a lot of support from the last festival season and with this year's festival period kicking in soon, it is believed that the industry will be able to maintain its growth momentum. But the high base effect may come into play which is expected to result in the moderation of the growth rate. Clearly, the industry may not be able to maintain the level of growth that it has enjoyed so far, but in absolute unit terms, this fiscal will be one of the best in the history of the Indian automotive industry. In fact, a new chapter is all set to unfold in the industry in the coming years. 'This is just the beginning of the automobile boom in the Indian market and the industry will see a lot of action in the years to come,' agrees Abdul Majeed, Leader ' Automotive practice, PricewaterhouseCoopers India.
And why not? As Toyota Etios, Honda's small car, Bajaj-Renault's ultra low-cost car, Hyundai's product below the Santro and many more are expected to make their way into the domestic market, the small car segment in particular will drive the growth for the Indian industry even in the years to come. All in all, the 11th Auto Expo that is slated to happen in 2012 will definitely be worth waiting for.
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Indian automobile industry is surely on a high! Reporting a whopping 30% growth during the first four months of this fiscal, many auto majors are convinced about their long-term success in the domestic circuit. But is this boom really sustainable?
As the 10th Auto Expo kicked off on January 5, 2010 in New Delhi, a slew of new models were showcased by the global auto giants. Be it Volkswagen, General Motors (GM), Hyundai or Maruti Suzuki, almost all the companies were busy displaying a high level of innovation to catch the fancy of the Indian consumer. While the hatchback segment, in particular, saw the competition growing by many folds, the scenario wasn't really different in the other segments as well (For the uninitiated, products like Chevrolet Beat, Maruti Suzuki Eeco, Volkswagen Polo, et al, made their way into the Indian market taking the auto expo route).
In fact, as FY2009-10 approached its end, the Indian automobile industry was standing tall and smiling wide reporting a whopping 20% growth in the passenger vehicles segment with total sales standing at 1,949,776 units. Many industry watchers warned that the growth during the next year might take a beating because of the high-base effect. But, as the numbers for the April-July period (FY2010-11) flowed in they (including the players) were taken by surprise as the industry had filed a mind-boggling growth of more than 30% with total unit sales in the passenger vehicle segment standing at 7,56,659 units. 'The growth in the first four months came as a surprise to us as well as to the rest of the players. We were expecting just a 10-15 per cent rise in sales during this period,' Mayank Pareek, Managing Executive Officer ' Marketing & Sales, Maruti Suzuki India tells TSI. In fact, it's the result of this boom that the company today has an order backlog of about 15-20 per cent of monthly sales with most of the models in its portfolio running on a waiting period. Similar is the case with other auto majors who too are trying their best to meet this sudden rise in demand for their products. While the players are celebrating their success, there are critics who are still sceptical about the sustainability of this boom. They question whether this overwhelming response from the Indian consumer can continue for the whole fiscal or is it just a short-lived phenomenon for the industry?
According to the projections made by Society of Indian Automobile Manufacturers (SIAM), the car industry is expected to grow by 12-15 per cent this year. Going by the calculations made by the industry body, the passenger cars segment in India is expected to grow by around 10 per cent per month for the rest of the year. However, the industry officials are of a view that it may just be able to outshine the SIAM's projections this year. There is no denying to the fact that the whopping growth has taken many auto majors by surprise, but as they say, one should always look at both sides of the coin, there has been cases where auto manufacturers have faced the component shortage. For instance, Mahindra & Mahindra (M&M) recently suffered a production loss due to a shortage of components in the Indian market. 'The automotive division has faced an 8-10% production loss in last quarter due to the shortage of components in the industry,' agrees Pawan Goenka, President (Automotive and Farm Equipment), M&M. In fact, this delay in the supply of auto components has created a situation where auto majors are currently finding it very hard to meet the high demand in the market. 'Such growth was surely unprecedented in the Indian market and it has its own challenges," says Vinnie Mehta, Executive Director, Automotive Component Manufacturers Association of India (ACMA). Even the component makers are striving hard to match the level of pace. But it will take them some time before they reach that point.
'Though component shortage is the result of the high growth in the Indian market, it has surely disrupted the expansion plans of several auto majors,' says Arvind Saxena, Director ' Sales & Marketing, Hyundai Motors India. In fact, many industry officials are echoing this view, but they surely believe that as growth will moderate in months to come, component shortage as a problem will automatically find itself a solution. 'No doubt, several component makers are adding capacities at their end, but as the growth moderates, the problem will automatically get resolved,' agrees Vishnu Mathur, Director General, SIAM.
While the high level of growth has been a boon to many companies, it has also taken its own toll on established players. In fact, Maruti Suzuki saw its share falling below the 50% mark in its 25 year history (Currently, the market share of the company stands at 47%). Even its arch rival Hyundai Motors India filed a 2% fall in its market share and is currently holding close to 18% of the Indian passenger car market. 'In the month of July, we had a two week annual shutdown at our plant in Chennai. So, there was hardly any scope to scale up production in that particular month,' says Saxena.
However, these companies are really trying hard to regain their market share. 'We have a target to regain the 50% market share by the end of this fiscal,' Shinzo Nakanishi, MD & CEO, Maruti Suzuki India tells TSI. Notably, the company has recently launched the all new Alto K10, automatic A-Star and CNG technology in its five products (Alto, WagonR, Estilo, Eeco and SX4) to regain the 50% mark in market share. But products like Ford Figo, Chevrolet Beat, Nissan Micra and Volkswagen Polo, which are relatively new to the Indian consumer, have been an instant success in the Indian market and are giving tough competition to Maruti. In fact, Nano has also gained momentum in production at its Sanand unit and the company has so far sold close to 23,000 units in this fiscal. Tata Motors is targeting sales of close to 2.5 lakh units in FY 11. Other auto majors like GM, Ford, et al, have also been able to hit the right spot of the consumer's mind and hence are enjoying one of the best years in their Indian journey so far. 'Figo has been accepted very well by the Indian consumer. The high level of localisation in the product has empowered us to maintain a very aggressive price in its segment,' explains Michael Boneham, MD, Ford India.
However, on the other end, players like Honda SIEL, who are currently running on an ageing portfolio in domestic circuit, have not been able to cash-in on despite a high level of consumer sentiment. For the record, the company has sold close to 16,728 units in this fiscal, which is marginally down as compared to the 17,595 units sold by it in the corresponding period last year. While the City remains the flagship model of the company, other models like Jazz, Accord and Civic are having a tough time in the Indian market. 'Honda needs excitement in its portfolio at this moment. Almost all the models apart form the City are set for upgradation or replacement. Even the high price point of Jazz has emerged as a problem which has resulted in low volumes for the company,' says an automotive consultant on conditions of anonymity.
It may easily be recalled that the Indian automobile industry got a lot of support from the last festival season and with this year's festival period kicking in soon, it is believed that the industry will be able to maintain its growth momentum. But the high base effect may come into play which is expected to result in the moderation of the growth rate. Clearly, the industry may not be able to maintain the level of growth that it has enjoyed so far, but in absolute unit terms, this fiscal will be one of the best in the history of the Indian automotive industry. In fact, a new chapter is all set to unfold in the industry in the coming years. 'This is just the beginning of the automobile boom in the Indian market and the industry will see a lot of action in the years to come,' agrees Abdul Majeed, Leader ' Automotive practice, PricewaterhouseCoopers India.
And why not? As Toyota Etios, Honda's small car, Bajaj-Renault's ultra low-cost car, Hyundai's product below the Santro and many more are expected to make their way into the domestic market, the small car segment in particular will drive the growth for the Indian industry even in the years to come. All in all, the 11th Auto Expo that is slated to happen in 2012 will definitely be worth waiting for.
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM BBA MBA Institute: Student Notice Board
IIPM Prof Rajita Chaudhuri's Snaps
An array of unconventional career options
Arindam Chaudhuri: Movie time for Kapil Sibal
Delhi University Students' Union (DUSU): Students' Unions can not be banned
The hunt for hostel and paying guest (PG) accommodation for students
Best Colleges for Vocational Courses in India
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