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Industry & Economy - Automobiles


Auto sector: Having a successful run

Shyam G. Menon

Mumbai , Dec. 27

FOR the Indian automobile industry 2005 opened with the strong sales expected from the final quarter of any financial year. And, in line with the expectations, January-March 2005 closed with 78,96,475 vehicles sold, a growth of 15.94 per cent.

The new financial year got off to an erratic start, courtesy the confusion over the deadline for emission norms. Nevertheless, the industry has managed to stay almost on par in growth with fiscal 2005, particularly given the larger base from which growth is now measured. By end November 2005, overall domestic automobile sales at 57,96,372 units represented a growth of 12.86 per cent, trifle below the 14.85 per cent, same time in 2004.

Sales growth rate in 2-wheelers at 14.19 per cent (13.49 per cent for April-November 2004), 3-wheelers at 14.46 per cent (11.15 per cent) and light commercial vehicles at 20.56 per cent (24.21 per cent) improved or matched the year-ago trend. But it slid to a standstill at 0.92 per cent (27.29 per cent) in medium & heavy commercial vehicles and a steep drop in passenger vehicles at 5.77 per cent (21.54 per cent).

Car manufacturers attribute the slower sales growth to higher base volume, competing investment needs with the consumer and a likely sucking of demand by incentives. It coincides with a 2005 market; steady despite high crude prices and fear of inflation. Agriculture was good; second quarter GDP growth rate was 8 per cent; incomes are rising and there is youth to fuel consumption. Over December 22, 2004 - December 21, 2005, the BSE Auto Index gained 52.26 per cent to touch 4240.12. Yet, the party was characterless.

Enthusiasm missing

Product launches failed to arrest the auto business' steady drift into commodity play. Absence of excitement around products betrayed both the maturity of existing models and the ennui gathering around the car's descent to consumer durable status. However, a few stood out.

Tata Motors tapped into large sales numbers with its mini truck, Ace. It took four wheels into traditional 3-wheeler space and by year-end the company talked of doubling production capacity. Other notables were Maruti's Swift and Toyota's Innova.

Less visibly but with impact on the sector, commercial vehicles upgraded to proper product differentiation, better quality and for the first time, branded product lines.

While Volvo became a generic name on trunk bus routes, Tata Motors kept its ties with Hispano Carocera in reserve and brought out instead the Globus/Starbus range. April-November fiscal 2006 sales would be remembered for the sharp uptrend in sales of passenger carrying commercial vehicles. In the M&HCV category, that was up 6.05 per cent (down 0.99 per cent) and in LCVs, up 14.42 per cent (5.46 per cent). Is it a sign of things to come?

In the third quarter of the current fiscal, Tata-Daewoo's Novus truck was introduced in the domestic market. Better they did so; the commercial vehicles business is heating up. Force Motors formalised its tie-up with MAN for making commercial vehicles; Scania came seeking components; DaimlerChrysler India got vocal with plans for the Actros and even a Chinese brand was cited as candidate for local assembling.

In November, Mahindra & Mahindra Ltd (M&M) transferred its commercial vehicles business into a joint venture with International Truck & Engine of US. M&M also figured in 2005 car industry plans, announcing in February a joint venture with Renault to produce the sedan `Logan' in India.

Expanding geographies

To grow its auto component business M&M supported both deals with parts supply locally and export to the partner OEM. As global majors slipped into distress, overseas acquisitions by Indian auto component players continued, including a tie-up for Bharat Forge to access China. Reliance Capital acquired an equity stake in Kinetic Engineering, which wanted to grow a components business. In tractors, M&M was in the race to buy a plant in Romania while TAFE bought Eicher's tractor business and vaulted to second position at home.

The contrasting mood in the auto industry's traditional manufacturing base and its new production geographies was laid bare in the Internet chats of American workers with GM axing 30,000 jobs in North America but expanding workforce in India. Big HR blot was the clash between the police and workers of Honda Motorcycle & Scooter India (HMSI), on July 25. Several workers were injured.

In November, there were admissions at an industry conference that India was no more a low cost manufacturing base in the strict sense of the term. Wages were rising. If strikes worried Japanese players, Volkswagen found itself in a bribery scandal while assessing Andhra Pradesh as manufacturing base.

In mid-August, a high profile appointment seemed to end abruptly as Dr V. Sumantran, Executive Director (Passenger Car Business Unit & Engineering Research Centre), Tata Motors, resigned from his post. A former director of SAAB, with over 15 years at GM, he had been one of the most experienced auto industry officials to move to India. A month later, Tata Motors announced an MoU with Fiat to study the possibility of co-operation in passenger cars. The Indian company was also looking at a technical centre in UK.

By end-November, automobile exports had touched 5,35,589 units, an increase of 33.69 per cent (36.48 per cent). Fiscal 2006 had opened with the collapse of MG Rover and what it meant for City Rover exports to UK. But that setback was made up by Tata gains in markets such as South Africa, where its cars and trucks fared well. In December 2005, India's biggest automobile company kicked off business in Pakistan with a deal in place through its Korean arm, to assemble the Novus truck.

So, what does 2005 feel in retrospect? Bland has to be the word. In the shadow of a crisis at global automobile majors, Indian auto companies have scripted commercial success. They have opportunities like never before; also stiff competition, deadly cost pressure and poor motoring infrastructure at home. Among products, the car is a tired concept, pending relevant change. Unlike Henry Ford you can raise a toast to the new year, not an automobile century.

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