This mango season was when 40-year-old Harish Rohra was planning to finally buy a car. But just when the wholesale dealer of mangoes in Delhi thought he could realise his dream, the car slipped out of his grip. The ominous signs began with early rains dampening his business, followed by hiked fuel prices and rising interest rates, not to mention inflation. Now Rohra has postponed his plans indefinitely. ?Such steep petrol prices are a deterrent. I shudder not just at the cost of the car, but at the cost of running it too. I’ll wait and buy a CNG car, that too if I get a good finance scheme,? he says.
Rohra’s dilemma is being shared by wannabe car owners across the country, and one that is proving to be a bump in the growth rate of car sales. The period of hysterically high car sales is obviously over, and auto makers and dealers are fast digging out from the deep freeze slowdown-era marketing tactics and schemes to lure buyers.
And, every trick in the book is being tested, be it gifts, discounts, loyalty and exchange bonuses, freebies, free insurance and free service camps, to mid and long-term plans of expanding markets and distribution networks and pushing for CNG and LPG powered cars.
Facing deceleration
April saw the rate of growth of car sales plummet to a 22-month low of 13.18%, and a marked decrease in footfall at showrooms. Society of Indian Automobile Manufacturers (SIAM) figures say domestic passenger car sales stood at 1,62,825 units in April, against 1,43,862 units in the same month last year?small in comparison to the 30% growth rate clocked by the industry in 2010-11. Maruti?s domestic car sales rose only by 4% in May this year as compared to the same month last year. Tata Motors saw a decline of 9% in the sale of cars in India. A bright note was Hyundai?s domestic sales in May, which increased 14.62% over the corresponding period in the previous year.
?There are a lot of negative factors at play right now?inflation, interest rates and fuel hike. Even though in the short term we will see moderation of growth rate, the long-term picture is not that bleak. The fuel hike will push original equipment manufacturers (OEMs) toward alternate technology vehicles, besides, of course, the typical schemes that auto manufacturers launch during downturns,? says Abdul Majeed, India leader for automotive practice, PricewaterhouseCoopers (PwC).
Pushing the pedal
So auto companies are busy chalking out new marketing strategies, working out competitive car finance rates with banks, and trying their best to seduce the cautious consumer with innumerable sales offers?or, as General Motors (GM)
India vice-president P Balendran puts it, ‘creating excitement’ in a decelerating market.
?The commodity prices are so high that slashing prices further is not an option at all. So, we’ll have to create excitement in the market in other ways. We are seriously looking at introducing newer products and variants, focusing on widening our reach and distribution in the country, and we already have a new marketing and sales strategy in place. We are looking at having more tie-ups with banks to offer more competitive finance options for consumers,? says Balendran. Other companies have similar combat plans.
And leading the way is the market leader itself, Maruti Suzuki India Ltd (MSIL). Maruti Suzuki?s domestic passenger cars sales grew by a mere 7.6% in April and 4% in May. The company, along with its dealers, has hit the gas pedal on a tactical advertising campaign in newspapers, announcing a string of rewards, freebies and bonuses, akin to offers during the festive season. ?We are immediately focusing on what we call call-for-action or tactical ads to increase enquiries and showroom footfalls. These ads are in major newspapers and focus on immediate and exciting offers and options for the consumers. They are talking about our offers related to accessories, free gifts, EMIs and exchange bonuses in particular. Every marketing and sales scheme becomes critical in such an environment as it is a fight for volumes,? says Shashank Srivastava, chief general manager (marketing), MSIL. The company is offering free car music systems, exchange bonuses between R10,000-30,000, gift cheques between R7,600-18,100, and Reebok freebies for its hatchback models. Another strategy being employed by MSIL is accessorisation of a few models at no extra cost, creating ?limited edition? models. For example, Ritz Dazzle is basically a spruced-up Ritz with company-fitted accessories worth R24,000, including leather seat covers, body side mouldings, music system and shock sensor enabled security system at no extra cost. ?Accessorisation also enables us to give a fresh communication about our product. It is better than giving prompt discounts, as that can give a negative perception in such a market environment. It can be considered a discount without hurting the brand image,? says Srivastava.
GM, which registered a 5.19% drop in sales in April, is also busy doling out schemes and offers and is also on an advertising drive for its Chevrolet brand. From offering almost free maintenance on all its cars for three years, to selling variants of its entry-level model Spark at discounted prices, and from giving out gift cheques and loyalty bonuses for Beat to free insurance on three models, GM is playing the discount game hard. In wake of the recent hike in petrol prices, while analysts point towards the balance shifting in favour of diesel powered cars, both MSIL and GM have started advertising big for their company fitted LPG and CNG variants, luring the customer to cut costs in the long run, or ‘beating the fuel price hike’, as a recent MSIL print ad for the WagonR CNG claims.
The overall cost of ownership and lucrative finance options seems to be the mantra for Tata Motors too. In a market where around 70% of the cars are financed, Tata Motors might just have hit the nail on its head by offering up to 100% finance on Nano, Indica Vista and Indigo at a competitive interest rate of 8.99%. The market interest rate on car finance is hovering around 12% and above. This offer is in addition to the R15,000-35,000 discount on Indica Vista, and exchange bonuses from R10,000 to R30,000.
?Promotions happen throughout the year as it is a very competitive market. However, the current environment with high interest rates on loans and the spurt in petrol prices has created resistance in the consumers’ mind. So, we are running schemes which shall play a big role in making it easier for the buyers, given the current scenario,? says Debasis Ray, spokesperson, Tata Motors.
Hyundai, the country?s second-largest car manufacturer, however, is not going all out in handing out discounts. Hyundai?s sales increased by 10.89% in April. Arvind Saxena, director (sales and marketing), Hyundai Motors India Ltd (HMIL), says the focus shall be on getting newer models into the market. ?We were going really strong at 28-30% growth rates in the past two years. Yes, it has slowed down but even a 12-13% growth rate is quite positive, as the base is continuously increasing. But we can’t ignore the fact that enquiries have actually gone down, while interest rates have gone up and inflation levels are also hitting the consumer. Our focus is primarily on getting newer models into the market as they facilitate in increasing the footfall in a big way, which in turn allows us to interact with the consumer for other products as well,? says Saxena. He adds that other obvious steps the company is taking are to work out attractive finance options with partner banks and look at expanding the market to tap the potential of semi-urban and rural areas.
Toyota, which actually saw a growth of as much as 61% in April over the encouraging sales of Etios, but is grappling with debilitated production due to the Japanese situation, is also working on a plan of action. ?We have directed our sales teams and dealers to teams to step up promotional activities, be proactive and go out aggressively into the market. We are talking to banks and finance companies for more competitive rate of interests for our consumers for exchange deals and second buys. Another priority is to bring down the waiting period for our cars. Toyota’s production was hit severely by as much as 50% due to the Japanese earthquake and tsunami, but we are back on track and resumed normal production from May 20,? says Sandeep Singh, deputy managing director, Toyota Kirloskar Motor Pvt Ltd.
A Hyundai dealer, speaking on the condition of anonymity, says unsold inventory is piling up and fears that OEMs might have to slow down their production if sales target by dealers are not met.
Dealers in the loop
This has brought the pressure down to the dealer level. A Maruti dealer says there is a 20% decline in footfall, forcing dealers also to increase promotional activities to increase footfall at their level too. For instance, Delhi-based Maruti dealer Bagga Link Motors is giving free car wash coupons to walk-in customers, ensuring their next visit. They are also organising painting competitions for children of potential customers. However, ?these are temporary measures?, admits Rajinder Bagga, MD, Bagga Links Motors.
But nothing seems temporary in projections of a 10-11% growth rate through 2011-12, or increased interest rate and fuel hikes. Till then, it’s raining discounts.