Higher prices could see demand dip in the near term...
The mixed numbers from the few auto players that have reported sales volumes for December suggest the industry might have a rough ride in the next few months with the government having withdrawn excise duty concessions. While the country’s top two car manufacturers, Maruti Suzuki and Hyundai Motor, did well to post a double-digit increase in volumes, Mahindra & Mahindra reported only a modest growth while two-wheeler major Hero MotoCorp’s volumes were flat.
Indeed, with the economy not showing any signs of a sustained recovery, the road ahead could be bumpy even though lower prices of commodities could help cushion the pressure on profits.
In fact, the December sales volumes may have been the result of consumers not wanting to pay more for their purchases in the new year — otherwise buyers typically avoid buying cars in December since they prefer the label of a new manufacturing year. Sales during the festive season had been lacklustre but had picked up slightly in November.
Pravin Shah, M&M chief executive, automotive division and international operations, said he was happy his firm had achieved a growth of 5%. “The year 2014 was an immensely challenging year for the auto industry,” Shah said.
Hyundai Motor India senior vice-president (sales and marketing) Rakesh Srivastava said his firm had reported record sales in 2014 and had garnered a market share of 21.8%.
However, since manufacturers propose to pass on the higher excise duties, sales could suffer, Maruti Suzuki chairman RC Bhargava had observed, adding that a temporary dip in demand could not be ruled out.
While a revival in the economy can spur auto sales, analysts say that only players with a strong product portfolio can hope to gain market share given the keen competition. The aggression of Honda Motorcycles and Scooters over the past year, for instance, has left players like Bajaj Auto with far less market share — of just around 17% — than they enjoyed at the start of 2014.
In December, Hero MotoCorp’s sales volumes were flat; the company has lost 120 basis points share year-on-year in the domestic two-wheeler market over the January-October 2014 period led by a 360-bps y-o-y decline in the domestic scooter market share.
It has, however, picked up share in the domestic motorcycle market of 100 basis points and is fighting back by adding scooter capacity which will go up from 85,000 units a month currently to 100,000 units a month.
Maruti Suzuki too is gearing up to stay ahead with five new launches in the next 12-18 months, buoyed by the response to the Celerio and Ciaz. Without the new offerings, volumes are likely to grow only in high single digits, analysts point out.
The higher excise duties are expected to push up the price of cars by 6-8% across models. For instance, for entry-level cars in the Rs 2-4 lakh range, like the Maruti Alto, the price is likely to go up by almost Rs 15,000, while premium hatchbacks like the Maruti Swift or the Hyundai i20 will likely see a hike of up to Rs 30,000.
Sales of passenger vehicles — cars, utility vehicles and vans — have been sluggish for more than two years now, with volumes up just 2% in FY13 and down 6% in FY14. Between April and November this year, volumes were up just about 3% at 1.7 million units.
In order to boost sales, excise duties were cut by the previous UPA government in the interim Budget in February. For small cars, scooters, motorcycles and commercial vehicles, duties were reduced to 8% from 12%, while for SUVs, it was cut to 24% from 30%. For mid-sized cars, duties were cut to 20% from 24%, and to 24% for large cars from 27%.
In June, the new government led by Prime Minister Narendra Modi had extended the excise duty concessions by six months to December 31.