After a flat year for domestic vehicle sales in 2012-13, SIAM predicts a gradual turnaround starting end-Q3 of 2013-14, once again on the strength of UV sales which are expected to grow by 11-13 percent.
India’s automobile industry limped to a close in FY13, virtually plateauing to a domestic sales growth of 2.61 percent while March 2013 sales fell by 7.76 percent over March 2012. The worst affected was the passenger car segment which posted its worst-ever performance in a decade with a sales decline of 6.69 percent to 1,895,471 units (2011-12: 2,031,306 units).
The previous low was in 2002-03 when car sales had plummeted by 2.09 percent. March 2013 saw passenger car sales nosedive further by 22.51 percent to 180,675 units (March 2012: 233,151). High cost of ownership and negative sentiment, especially among lower end customers, are believed to have impacted car sales adversely.
In comparison, utility vehicles for 2012-13 grew by a handsome 52.20 percent to 553,660 units (2011-12: 363,772) and vans by 1.08 percent. According to S Sandilya, president of SIAM, new model launches in the UV segment drove growth in this category.
The total passenger vehicles segment grew at 2.15 percent but declined by 13.01 percent in March 2013. Similarly, medium and heavy commercial vehicles experienced a steep fall with sales down by 23.18 percent in 2012-13, and by 26.16 percent in March 2013 alone. M&HCVs together pulled down the total CV sector's performance to a de-growth of 2.02 percent, partly due to moderate agricultural growth, drop in mining activity, sustained slowdown in industrial activity and low replacement volumes that led to a deceleration in demand. However, the sector managed to scrape past its previous highest drop of 33 percent in 2008-09 when it had to grapple with stoppage of transport movement due to the economic slowdown.
Two-wheeler growth also slows in 2012-13
In motorcycles, the 0.12 percent growth witnessed in 2012-13 is the lowest after the 1.1 percent growth of 2008-09. In 2007-08, the segment growth fell 12 percent. In comparison, scooters went into negative territory in 2005-06 but recovered thereafter and since have been on a gradual growth curve, up 14.24 percent in 2012-13. The motorcycle segment has had a CAGR of 15 percent since 2008-09 while scooters had a CAGR of 26 percent in the same period.
In comparison, mopeds have not had much growth at a CAGR of 2 percent since FY’09. The two-wheeler industry grew 2.90 percent during April-March 2013 with mopeds growing at 1.53 percent. In March 2013, scooters, motorcycles and mopeds grew 3.18 percent, 8.32 percent and 4.54 percent. Weak rural demand and cautious urban sentiments affected demand for motorcycles, according to SIAM.
However, three-wheeler sales grew by 4.87 percent in April-March 2013. While passenger carriers grew by 8.58 percent, goods carriers fell 9.20 percent during this period. Sandilya attributes the drop in growth of goods carriers to a shift in customer loyalty from three- to four-wheeler goods carriers due to safety considerations.
Vehicle export numbers fell 1.34 percent during 2012-13. Passenger vehicles exports grew by 9.02 percent while CVs, three-wheelers and two-wheelers fell by 13.35 percent, 16.22 percent and 0.72 percent respectively. In March 2013, PVs, two- and three-wheelers grew by 3.07 percent, 3.51 percent and 7.50 percent. CVs declined by 28.33 percent. However, a major factor for the fall was the slowdown in the global markets and changes in export policies in markets such as Sri Lanka. Besides, intense competition in export markets with no additional incentives to make Indian products more attractive pitted against competition was a key drawback.
Car sales likely to grow 3-5% by end-Q3 FY'14
Notwithstanding the Indian automobile industry’s overall stagnant performance, SIAM is optimistic of a recovery, albeit a slow one, to kick off by end-Q3 of 2013-14.
Meanwhile, SIAM has also recommended that the Automotive Mission Plan of 2006-16 be extended by 10 years as a sort of stimulus to the sector. The apex industry body is optimistic that new car launches with attractive features and reasonable price points would turn the growth story around for passenger cars though a behavioural shift seen in this segment lately is of entry level customers also moving towards saloons and compact SUVs rather than very small cars, says Sandilya. Customers prefer SUVs and UVs for weekend trips for better convenience.
In 2013-14, the UV segment is however expected to have a lower growth of 11-13 percent due to a base effect and the Budget proposal of higher excise duties – from 27 to 30 percent – on SUVs.
However, if the government revises its definition of SUVs and lowers the duty, then the segment’s growth could be higher as those at the lower end of the spectrum who harness UVs for rural transportation are being penalised unnecessarily by the additional duty.
According to Vishnu Mathur, director general, SIAM is 66 percent optimistic of its forecast for FY’14 coming out true. Growth drivers to facilitate this process will be stable commodity prices, excise duty on CV chassis that is down by one percent, GDP growth is expected to pan out to 6.4 percent which will boost automotive sales, and crude oil prices per barrel are expected to drop to $100-105 per barrel from $112 per barrel. This is expected to reduce petrol prices by Rs 4-5 and raise diesel prices by the same amount. Since diesel engines are 25-30 percent more efficient than petrol, consumers are likely to prefer diesel vehicles despite the hike. Interest rates are also likely to move downwards that would trim EMIs. To add to the icing on the cake, purchasing power of consumers is also expected to climb up giving a fillip to vehicle purchases.
“Pent-up demand should draw customers to the showrooms and restore market sentiments in the second half of the year. So SIAM’s forecast for the year looks realistic and the industry should experience some correction. For instance, interest rates should moderate and fuel prices should experience stability as globally they are also stabilising," says Abdul Majeed, head, Automotive Practice PricewaterhouseCoopers India.
SHOBHA MATHUR