While SIAM has lowered its growth forecast for all auto segments, that for the passenger car sector is the lowest . Is the sector in peril.
Confirming the slowdown in the auto sector is real and present and which has already affected vehicle sales across the board, the Society of Indian Automobile Manufacturers (SIAM) which recently met for its quarterly assessment of the state of the auto sector has further lowered its growth forecast for cars to 1 percent from 1-3 percent announced last October.
The only shining light for the sector is the fact that Utility Vehicle sales are expected to be good. Actual growth of 59.10 percent has beaten the October forecast of 50-52 percent, and the revised growth is expected to between 56-64 percent. Sales of vans, SIAM said, are expected to be flat.
SIAM has lowered its overall forecast for the entire automotive sector from 5-7 percent to between 3-5 percent. But can the last quarter really make a difference?
The first signs of trouble were apparent when SIAM, after the Q2 sales figures were revealed, wanted the Automotive Mission Plan to be postponed by a decade. While there has been no categorical response to this, the industry is now bracing itself for the likely impact of a excise tax on diesel-powered cars. The government’s argument is simple. The well-off sections of society (read buyers of SUVs that run on diesel) have benefitted and it is now payback time.
Now the government says it wishes to tax the fuel and bring its price closer to the market. The government hiked diesel prices in October by Rs 5 per litre, its highest so far and with another on the cards, it remains to be seen what impact this will have on petrol cars with the price gap narrowing. The sales numbers for petrol cars in the hatchback and saloon segments have showed an uptick of sorts though the swing to diesel, as a result of over a half-a-dozen petrol hikes is still relevant.
SAIM has also lowered forecast for the commercial vehicle sector from 3-5 percent to just 0-2 percent. The medium and heavy commercial vehicles sector has taken a body blow, due to a slowdown in the overall growth of the economy and the restrictions in mining and a road-building programme that has had no real impact. Just 10 percent of road contracts have been given out and given that road building has a lag factor, the immediate prognosis is not good.
However, the real area of concern, it can be argued is the slowdown in two-wheelers, chiefly motorcycles. SIAM has predicted a growth of just 3-5 percent as against 5-7 percent forecast in October. Sales in the third quarter, which typically benefits from the festive season, grew just over four percent.
Moreover, what does this mean for India’s automotive sector that includes component manufacturers, many of whom have made key investments in their businesses?
Already component players are facing a problem. A north India-based player which kept its plant open seven days a week now remains closed on two days a week. A new plant, inaugurated some months ago, has seen little or no business. Another player said that there could be a likely slowdown in investments but over the long term, companies with a diversified portfolio will be able to weather the slowdown.
Sales in the automotive sector have been affected by a combination of high interest rates, increasing fuel prices and the overall impact of the slowdown in the country’s economy. This has been seen particularly in sales of heavy and medium trucks that actually fell by 19.31 percent in the April-December 2012 period. SIAM now predicts that sales will fall by between 21-23 percent. Like-wise, bus sales grew by under one percent and SIAM has forecast sales of 0-2 percent for the fiscal.
In the absence of a scheme like the JNNURM, bus sales are not expected to go up significantly. Overall, the CV sector is predicted to grow by just two percent. One major driver of growth for CVs is new highways and with that target being hugely under-achieved, the short- term perspective is not bright. Moreover, with the mining sector under a lot of pressure, sales have been impacted.
With car sales slowing down, carmakers will be rightly concerned about capacity utilisation and a rejigging of resources that are used. Exports have also been affected by the slowdown in the mature markets. Between April-December 2012, overall exports fell by close to three percent as compared to the year-earlier period.