A street car named affluence

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: The automobile industry in India is evolving and the last financial year has been a mixed bag of positives and negatives that analysts feel will determine the future growth of the sector. If on one hand there were slew of launches that helped boost the sentiment of the industry, on the other hand, it was hard hitting interest rates, liquidity crunch in the system and the high cost of raw materials that dampened the spirit of manufacturers and buyers alike.

In totality the industry posted a 4.7% dip in growth at 96,48,105 units in FY’07-08 as compared to 1,01,23,988 units in FY’06-07. However, the wide range of product offerings and frequent discounts and offers that have come to symbolise the passenger car industry in the last one year helped the segment register a growth of 11.79% during the last financial year at 12,03,531 units vis-à-vis 10,76,582 units in 2006-07.

“The Indian automobile industry has become a war ground not in terms of competition within models but also in terms of marketing of products and the whole of last year saw original equipment manufacturers (OEMs) widening their product portfolio.They have also become very aggressive in offering discounts and promotional schemes to retain their market share,” says Arvind Saxena, senior vice-president, Hyundai Motor India Ltd (HMIL), adding that this has led to a steady increase in advertising spends by major OEMs.

“Discount war will continue, with dealers and manufacturers doing it as a collaborative effort, even in the long run because of the accumulation of inventory. Manufacturers are also shelling out substantially to increase their distribution network to enhance their brand recall and product visibility,” adds Abdul Majeed, auto partner, Price Waterhouse.

But freebies apart, the high interest rate, continuous increase in steel prices and non-availability of finance, especially in some parts of rural India, have hit the overall growth of the industry with two-wheelers as well as commercial vehicles being the worst hit sectors.

According to an auto finance head of a leading bank the interest rate on auto loans have gone up by 25-30% over the last two years. It is currently hovering around 13.5% to 14.5% and this has impacted sales. Over 80% vehicles in India are financed unlike China where only 50% people opt for auto finance.