Waiting for government clarity

Written by Ronojoy Banerjee | Ronojoy Banerjee | Rishi Raj | Updated: Jan 4 2012, 06:46am hrs
For a manufacturer that produces one in every five cars that ply on Indian roads, it is rather mystifying that Hyundai Motor does not want to vie for the top slot, at least according to its director (sales & marketing) and industry veteran, Arvind Saxena. Keen on de-mystifying the companys strategy going forward in the Indian market, especially months after its much-hyped small car Eon (a direct response to the countrys largest selling car the Maruti Alto) hit the roads, we met Saxena at a mutually convenient yet a rather nondescript hotel, Crowne Plaza, for lunch. It is near Hyundais corporate office and is convenient as Saxena has another meeting to catch after meeting us.

The idea of meeting Saxena was not only to learn about Hyundais strategy and whether it is preparing itself to take over Marutis position as the largest seller (the answer is an emphatic no!), but also to get a ringside view of the industry. Saxena is an out-and-out auto industry man who started his career in 1983 in the motorcycle division of Escorts, moved on to Maruti Suzuki and then to his present company.

One is not trying for numbers in this game since the success of a car depends on various parameters, including the prevalent market conditions at that point in time, Saxena adds as we sit down on a nicely laid out table with a large helping of tomato soup. Not among those to shy away from the ground realities of a market plagued with government inaction, spiralling interest rates and fuel prices, Saxena calmly junked the jaded claims doing the rounds that after a brief lull in passenger car market, sales are going to be back on its feet. I don't see the market conditions improving any time soon at, least not for another few months. Car sales would be impacted in the course, he quips candidly as he points out to the multi-cuisine buffet lunch laid out that looks both inviting and very appetising.

What are the regulatory risks that face the auto industry today, we ask as a smartly dressed helper politely offers a glass of juice. There are concerns today. Take, for instance, the high cost of finance which directly impacts a car manufacturer, he says. To elucidate his point, he adds that traditionally, till say, about four years ago, close to 80% of the total cars sold in the country were financed, which, because of the anti-inflationary stand of the central bank, has dropped to just a tad over 60% today. If one has to self-finance a vehicle it becomes very difficult hence the consumers are delaying their purchases which is impacting automobile sales today, Saxena says.

Just before we are about to get up for our second helping, we ask him why Hyundai chose to put its much-hyped diesel engine on hold especially in the backdrop of the increased demand in diesel vehicles. The plant which was announced by Saxenas boss and Hyundais managing director and CEO HW Park in December 2010 was going to be set up with an investment of R400 crore to produce 1.5 lakh units of diesel engines. We are re-considering our decision because there is little clarity on a long-term fuel policy and also demand is somewhat lower, he says. To put matters in perspective, he asked us, Did any one of us know, say, five years back, that petrol would cost R74 a litre today He then proceeded to explain further: Setting up a diesel plant is fraught with risk. The entire planning depends on the price differential which exists between the price of the two fuels. If, tomorrow, the government decides to free the diesel price regime as it has done with petrol then the entire charm of diesel cars goes away and all our investment goes down the drain. We need a long-term fuel policy, only then can such decisions be made.

Before we could pose our next question, Saxena adds that there is also a need to create awareness as to why one should go for a diesel vehicle in the first place. These days, people are talking about diesel cars, but for a customer who travels less than 15,000 kilometres per month, diesel just does not make sense, Saxena says. His rationale being that typically, a diesel car costs the consumer anywhere from R1 lakh to R1.5 lakh more than its petrol variant. We then ask him how much should a car travel to warrant a diesel variant. 20,000 kilometres He says no. 25,000 kilometres He again shakes his head disapprovingly. At least 30,000 kilometers or more, he finally adds. We closed the case there.

Getting up for our second helping, we decide to let the conversation drift a bit. Do you still miss your days at Maruti Suzuki No was the prompt response. Any movies lately Yeah I saw Don 2. All the cars Shah Rukh Khan drove were Hyundai, he adds proudly. Saxena is a morning person and is at his desk in office at sharp 7.50 every morning.

We decided to prod him a little on why the Indian automobile industry had unfortunately witnessed a slew of labour trouble in the last few years (including Hyundai in 2010) Well reasons vary. But if you see in our case, there are no more problems. Workers in Hyundai draw among the best salaries in the country today, he replies.

In the last one year, Hyundais strategy has subtly changed in favour of the domestic market in India. From exporting nearly half of its entire production to overseas markets, namely Europe, the companys export share is now down to just about 40%. Even from product strategy-wise, the company launched the new Verna Fluidic followed by its small car Eon. Hence, it was no surprise that Saxena chose to end an over two-hour long lunch with a note of optimism. While the sentiments would continue to be sombre for some time (in India) the market is fairly large and the long term prospect is still very positive, he asserts. The company expects a CAGR of 12-13% in the next few years.