Car firms brace for another dull Diwali

Written by Roudra Bhattacharya | New Delhi | Updated: Oct 18 2014, 06:11am hrs
Hyundai i20The few manufacturers noticing higher sales can largely thank new launches like the Hyundai i20, Maruti Celerio or the revamped Honda City. (Reuters)
Belying expectations of improving consumer sentiment leading to higher sales of cars and two-wheelers during the ongoing festive season, the industry is headed for a fourth straight year of tepid performance. Normally a good show around this time (September-November) sees the auto industry grow by 15-20% and account for around 40% of its overall annual sales.

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This time around, however, footfalls at showrooms may be high but it is not converting into purchases, so at best it can touch the 30% annual sales mark on a growth of 6-8%, the countrys top two carmakers, Maruti and Hyundai said. Officials at the two firms added that theres not much to celebrate about even this growth as it comes on last years low base.

The few manufacturers noticing higher sales can largely thank new launches like the Hyundai i20, Maruti Celerio or the revamped Honda City. The last time carmakers truly celebrated Diwali was in 2010-11, when car volumes for the September-November period touched a peak of 5.10 lakh units. It has been a downhill ride since then in the comparable period in 2011-12, volumes fell 7%, a year later volumes were up just about 1%. Last year (2013-14), festive season volumes again fell 4%.

RS Kalsi, executive director and head for domestic marketing and sales at Maruti, told FE that though the macroeconomic environment has shown signs of improvement and consumer sentiment has improved over the last three months, it would take another six months for this to translate into higher purchases.

Although there is a positive vibe in the market, it is not translating into strong numbers yet. I expect it will take six more months. At Maruti, we had growth of about 15% in the first half of the fiscal, and in the festive season I expect 9-10% growth at best. In certain segments, new launches are driving demand, but we are growing across most models because we are able to tap the grassroot-level demand, said Kalsi. After witnessing success with the Celerio compact hatch, Maruti launched the Ciaz this month to challenge the new City and Hyundai Verna in the entry mid-size sedan segment.

Echoing Kalsi's sentiments, Rakesh Srivastava, senior vice-president for marketing and sales at Hyundai, said that expectations had been high but the growth trajectory is expected to remain the same as the last few months. The festive season is not going to be very great. I feel the industry will grow only 6-7%, and that too on a low base. It is not an all-inclusive growth, only few companies like Hyundai, Maruti and Honda are doing well, he said. Hyundai, though, has fared quite well this year. Domestic market share for the South Korean company has touched a new peak of 16.33% (April-August), while three of its new mass segment launches the Grand i10, i20, Xcent are high in demand.

Another major obstacle in the way of a sales revival for the auto industry is the falling sales of diesel cars. While it is a relief that petrol car sales are up on the back of dropping fuel prices, the reducing gap between petrol and diesel fuel prices has led buyers to abandon diesel models that had become very popular in the last two years. This has created high diesel car inventories for carmakers and forced them to offer deep discounts, while the quick shifts in buyer preferences has led to new challenges in production planning. This is a major problem. In the January to June 2014 period, petrol model sales rose 4%, while diesel model sales fell 6%, Srivastava said.

Added Gaurav Vangaal, automotive analyst for light vehicle forecasting at IHS, Six months back the car industry was struggling to move in to the positive region, today it has positive growth with a revival in consumer sentiments. The market is in a recovery stage right now and it will take some time to go back to the previous high.