(The Hundu Busienss Line 27th April 2008)
The sector, not long ago, was the symbol of India’s consumption story, but today is a key contributor to the industrial slowdown. India’s automobile industry has had nothing much to cheer about in the just concluded financial year. Battered by model fatigue and uninviting interest rates, two-wheelers ended the year with a decline of about 8 per cent in sales compared to the April 2006-March 2007 period.
Stiff competition from the sub-one tonne LCVs (light commercial vehicles) and spiralling costs of financing have also seen three-wheeler sales lose steam.
Sale of three-wheeled goods carriers in 2007-08 fell as much as 20 per cent on a year-on-year basis. And there was little respite for the MHCV (medium and heavy commercial vehicles) segment as goods carriers registered a six per cent fall in sales.
In this turbulent year, the passenger car segment was the only bright spot, growing by about 12 per cent; but this too, was a moderation from the 22 per cent growth witnessed in 2006-07.
Here is a detailed look at the performance of the major segments last year and the factors that might have led to this pause in the industry. Shift in two-wheeler preferences
Motorcycles, which contribute around 80 per cent of the total volumes of the two-wheeler segment, saw a marked deceleration, falling 12 per cent last year.
A look at motorcycles sales in April 2007-March 2008 reveals that the entry-level segment (100cc bikes) and the less-than-125 cc bikes that bore the brunt of this slowdown. Focussed on the ‘value-for-money’ and ‘economy’ users, this segment remains most sensitive to price changes as also to interest rate hikes.
With more stringent financing norms and banks tightening the purse strings on credit during the year, this drop in volumes wasn’t unexpected.
But this may not be the only reason for the sluggish performance of this segment. Dated models like CD Dawn, CT 100, TVS Star and its derivatives and low product differentiation possibilities may be another.
Besides, a shift in customer preferences from ‘economy’ to ‘style and sophistication’, thanks to higher disposable incomes may be another reason for the fall in volumes in the entry-level segment.
This trend is substantiated by the volumes in the executive and premium segments (125 cc or higher), which, aided by new launches like the CBZ Xtreme, Hunk, Splendour NXG and the Pulsar 220cc DTSFi , have shown a growth of 12 per cent. Cyclical slowdown?
Backed by the buoyant economy (resulting in greater availability of freight cargo), improved road infrastructure, the Supreme Court ban on overloading of vehicles and an evolving hub-and-spoke distribution model (under which large, multi-axle vehicles are used to carry cargo between cities, and small vehicles for movement within a city) the commercial vehicle industry was expected to grow well. But the sales numbers that came in month after month told a different story.
While LCV (goods carriers) volumes, especially in the sub-3.5 tonne segment, did end the year with 19 per cent growth, the MHCV (goods carriers) segment, after strong growth in the last few years, saw a fall in volumes. The growth in the sub-3.5 tonne LCVs may suggest that the hub-and-spoke approach has indeed taken off. But the 12 per cent drop in sales of both higher tonnage (16.2-25 tonnes) rigid vehicles and tractor trailers (more than 35.2 tonnes) counters this assumption.
Though industrial production has shown waning momentum since November, freight rates have, by and large, remained stable. Hence, aside of the higher base effect, the key reason that can be attributed to this pause is, again, the tough interest rate regime. Otherwise, it appears that we are in wait-and-watch mode, rather than a cyclical slowdown at this point in time.Smooth ride for cars
Though paucity of cheap consumer finance dampened spirits, new models and attractive offers were the key growth drivers in the passenger car market.
The bulk of the competition, and hence the growth has been witnessed in the A2 or the compact car segment. Thanks to launches such as those of Ford Fusion, Zen Estilo, Swift Diesel, i10, U- VA and Fabia the compact segment grew by 14 per cent over the same period last year.
The A3 (mid-size) segment too brought in volumes, courtesy the SX4 and the Logan. Utility vehicles also grew 10 per cent, year on year. Silver lining
The excise duty cut for two- and three-wheelers, small cars, buses and trucks announced in the Budget is a shot in the arm for the auto industry. But with skyrocketing costs of steel and other raw materials, automakers may find it difficult to pass on the benefit of the duty cut to customers.
In fact, a price hike now will be no surprise. A moderation in interest rates at this juncture is what is most likely to put the sector back on track.
The sector, not long ago, was the symbol of India’s consumption story, but today is a key contributor to the industrial slowdown. India’s automobile industry has had nothing much to cheer about in the just concluded financial year. Battered by model fatigue and uninviting interest rates, two-wheelers ended the year with a decline of about 8 per cent in sales compared to the April 2006-March 2007 period.
Stiff competition from the sub-one tonne LCVs (light commercial vehicles) and spiralling costs of financing have also seen three-wheeler sales lose steam.
Sale of three-wheeled goods carriers in 2007-08 fell as much as 20 per cent on a year-on-year basis. And there was little respite for the MHCV (medium and heavy commercial vehicles) segment as goods carriers registered a six per cent fall in sales.
In this turbulent year, the passenger car segment was the only bright spot, growing by about 12 per cent; but this too, was a moderation from the 22 per cent growth witnessed in 2006-07.
Here is a detailed look at the performance of the major segments last year and the factors that might have led to this pause in the industry. Shift in two-wheeler preferences
Motorcycles, which contribute around 80 per cent of the total volumes of the two-wheeler segment, saw a marked deceleration, falling 12 per cent last year.
A look at motorcycles sales in April 2007-March 2008 reveals that the entry-level segment (100cc bikes) and the less-than-125 cc bikes that bore the brunt of this slowdown. Focussed on the ‘value-for-money’ and ‘economy’ users, this segment remains most sensitive to price changes as also to interest rate hikes.
With more stringent financing norms and banks tightening the purse strings on credit during the year, this drop in volumes wasn’t unexpected.
But this may not be the only reason for the sluggish performance of this segment. Dated models like CD Dawn, CT 100, TVS Star and its derivatives and low product differentiation possibilities may be another.
Besides, a shift in customer preferences from ‘economy’ to ‘style and sophistication’, thanks to higher disposable incomes may be another reason for the fall in volumes in the entry-level segment.
This trend is substantiated by the volumes in the executive and premium segments (125 cc or higher), which, aided by new launches like the CBZ Xtreme, Hunk, Splendour NXG and the Pulsar 220cc DTSFi , have shown a growth of 12 per cent. Cyclical slowdown?
Backed by the buoyant economy (resulting in greater availability of freight cargo), improved road infrastructure, the Supreme Court ban on overloading of vehicles and an evolving hub-and-spoke distribution model (under which large, multi-axle vehicles are used to carry cargo between cities, and small vehicles for movement within a city) the commercial vehicle industry was expected to grow well. But the sales numbers that came in month after month told a different story.
While LCV (goods carriers) volumes, especially in the sub-3.5 tonne segment, did end the year with 19 per cent growth, the MHCV (goods carriers) segment, after strong growth in the last few years, saw a fall in volumes. The growth in the sub-3.5 tonne LCVs may suggest that the hub-and-spoke approach has indeed taken off. But the 12 per cent drop in sales of both higher tonnage (16.2-25 tonnes) rigid vehicles and tractor trailers (more than 35.2 tonnes) counters this assumption.
Though industrial production has shown waning momentum since November, freight rates have, by and large, remained stable. Hence, aside of the higher base effect, the key reason that can be attributed to this pause is, again, the tough interest rate regime. Otherwise, it appears that we are in wait-and-watch mode, rather than a cyclical slowdown at this point in time.Smooth ride for cars
Though paucity of cheap consumer finance dampened spirits, new models and attractive offers were the key growth drivers in the passenger car market.
The bulk of the competition, and hence the growth has been witnessed in the A2 or the compact car segment. Thanks to launches such as those of Ford Fusion, Zen Estilo, Swift Diesel, i10, U- VA and Fabia the compact segment grew by 14 per cent over the same period last year.
The A3 (mid-size) segment too brought in volumes, courtesy the SX4 and the Logan. Utility vehicles also grew 10 per cent, year on year. Silver lining
The excise duty cut for two- and three-wheelers, small cars, buses and trucks announced in the Budget is a shot in the arm for the auto industry. But with skyrocketing costs of steel and other raw materials, automakers may find it difficult to pass on the benefit of the duty cut to customers.
In fact, a price hike now will be no surprise. A moderation in interest rates at this juncture is what is most likely to put the sector back on track.
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