The auto industry passed many milestones during the year 2009-2010. First, two wheeler production exceeded 10 million; second, car production crossed 2 million, resulting in an overall production of over 14 million vehicles and third, over a million motorcycles were exported. India was among the select few countries around the world where there was double digit production growth of 25.76 % in the automobile sector.
That this would be state of the automobile industry in 2010 was not at all clear at the beginning of year. There was cautious optimism, but most companies were not looking beyond a month or at best a quarter. It must be remembered that growth in the year 2008-09 was low single-digit in the passenger vehicle, two-wheeler and three -wheeler segments, while there was a deceleration in the commercial vehicle segment. The Siam forecast was also very cautious. However, this was made possible due to concerted industry action, reflected for example, in the production of over a million cars this financial year by Maruti, over 4.5 million two wheelers by Hero Honda, the continued exports by Hyundai, Maruti, Bajaj Auto and TVS, backed by a supportive policy environment and the continuation of the stimulus package by the government. Commodity prices did not rise significantly, banks ? particularly the public sector banks led by SBI ? supported consumer finance, private sector banks increased exposure, road connectivity increased and improved. Although fuel prices did go up, this happened in the later part of the year. Many new products were launched including at the Auto Expo, new product segments introduced and semi urban and rural market penetration increased.
This coordinated effort by all stakeholders resulted in domestic sales in the passenger car segment growing 25%, commercial vehicles 38.1%, three wheelers 25.92% and two-wheelers 26%. Some believe that this growth was fuelled in part by the pent-up demand from the days of the downturn. Overall, 12.3 million vehicles were sold and 1.8 million exported. A silver lining was the growth in exports of nearly 18% including a growth of nearly 6% in the commercial vehicle segment with Tata, Mahindra & Mahindra and Ashok Leyland leading exports in terms of numbers. However, this was lower than last year?s growth of 23.61%. India continued to be an attractive destination for automobile production, as reflected in the fact that four new production facilities were inaugurated in the month of March itself!
The new financial year begins with a number of challenges. Unlike in Europe, the transition to the new emission norms has not been smooth. Oil companies have asked for a deferment in supply of BS III fuel and for those companies whose emission and durability of products would be affected due to the use of lower grade of fuel, it is really a very taxing time. Perhaps the answer for future norms is that emission norms should be uniform across the country with fuel available at least a year in advance and incentives are given in terms of a reduction in duty for the introduction of such fuel and vehicles. This is a practice followed in some countries and could be introduced in India. The focus on public transportation should continue. JNNURM funding of bus purchase should continue as otherwise, the capacity that was ramped up to meet demand would be lost. Prices are on the upswing in the case of rubber, steel and fuel. Steel prices, incidentally is a major source of worry even in Europe.
Many automobile companies have increased prices due to this rise and also due to the introduction of newer vehicles in the BS IV areas (13 cities) Although at this time there is no increase in interest rates, post the RBI announcement of the increase in repo and reverse repo rates, many analysts are predicting that interest rates would go up very soon.
Another related worry is the availability of consumer finance. The 2007-08 downturn in the auto industry was a result of a combination of factors that included high commodity prices, high fuel prices, high interest rates and a steep decline in the availability of consumer finance.
The challenge is to ensure that this scenario is not repeated with the consequent impact on the sector. This will make the difference between low single digit growth and a growth rate of 10-15 % as stated by many experts.
It is too early for the Siam growth numbers for the year 2010-2011, but if the industry has to make up for the last two years and get on track to reach the goals of the Automotive Mission plan, we need to grow at a rate of 18% this year a target all stakeholders should work towards realising. It is possible let?s make it happen.
?The writer is director-general, Siam