Car sales numbers in the first two months of the fiscal have shown clear signs of moderation, putting into question the expansion plans lined up by auto makers.
Sales by the top car makers in the country ? Maruti Suzuki, Hyundai Motor, Tata Motors, Mahindra & Mahindra and General Motors ? grew just 5% in May to 169,000 units from 160,000 units in May last year, or one-third the rate forecast by the Society of Indian Automobile Manufacturers (Siam).
Though unwilling to concede that there were strains in the much-hyped Indian auto story, most auto executives told FE that their targeted expansion plans were now ?realistic? and not ?aggressive? as it had been till six months back.
What has further queered the pitch for them is the bleak macro economic environment ? stiffer interest rates, and higher fuel and commodity prices ? which show no signs of easing, at least in the next 9-12 months.
The country?s largest car maker, Maruti Suzuki, which has already lined up investments worth R1,925 crore to set up two additional assembly lines at Manesar in Haryana, is devising a new solution to the problem.
?At a time like this, car manufacturers have to get their segmentation right. It is possible that original equipment manufacturers (OEMs) can project wrongly in certain segments, which could result in overcapacity in those segments,? said chief general manager (marketing) Shashank Srivastava.
Srivastava said though India in the longer run would maintain growth rate of 12-14% in car sales, companies would have to refocus on segmentation. For instance, according to him, from 2003-05, while the A2 segment or small cars faced a problem of undercapacity, the A3 segment led by SX4 and Honda City was staring at overcapacity. The country?s largest car exporter and the second biggest manufacturer, Hyundai Motor India said that it had set itself a very realistic and achievable target for the next couple of years. At present, the company has two plants in Tamil Nadu with a total installed capacity of 600,000 units. ?In the next 15-24 months, we are going to increase capacity up to 6.5 lakh units. We would not have a problem of overcapacity because we have not set big targets,? said director (sales & marketing) Arvind Saxena.
He denied media reports of Hyundai scouting for land in Gujarat for setting up its third plant. However, with a sense that a majority of its sales will come from the domestic market, Hyundai has significantly altered its export plans. Under the plan under discussion, the company wants to sell 65% of its cars in India as opposed to about half its output till a few years back.
General Motors vice-president (corporate affairs) P Balendran said that the company?s faith in the country?s automotive story remained intact. However, he agreed that since January 2011, the market has been slowing. ?Factors like interest rates and fuel costs are slowing down the market. We see the growth rate in car sales coming down but it would still be in double digits. We are not being very aggressive in our plans,? he said.
Balendran said GM was banking more on small car sales than its larger vehicles, a point that illustrates the company?s efforts to get its segmentation right. GM is going to expand capacity at both its facilities in the next few years. While in Talegaon, Maharashtra, the capacity would be expanded to 300,000 units per annum from 140,000 units, the facility at Halol in Gujarat would be expanded to to 110,000 units from 85,000.
Surjit Arora, senior analyst with Mumbai-based brokerage Prabhudas Lilladher, said in the next 18-24 months, car makers could be staring at overcapacity but things could improve later. ?Currently, the three macroeconomic factors ? interest rates, fuel and commodity prices ? are in the red. And I don?t see the situation improving in the next one year. In that case, there might be some overcapacity during the period,? he said. However, Arora added that over the next 4-5 years, the auto market would grow at 12-13%, for which OEMs have to be prepared from now. That point found an echo in Maruti Suzuki’s Srivastava, who said the company is looking at creating requisite infrastructure for the longer run. ?Vendors and OEMs have to be prepared when the cycle turns. The long-term forecasts remain intact,? he said.
India is pegged as the second fastest growing auto market in the world, next to China. In 2010-11, car sales in India grew at a staggering 30% to 1.98 million units, prompting Siam to forecast a growth rate of 13-14% in the current fiscal. By 2014, estimates suggest that India’s car market would reach 4.5 million units.