Is The Auto Industry Slowing Down?

Judging by the performance of the industry based upon the first three quarters of FY2012, there is enough evidence pointing towards a downturn. The cumulative production data shows a growth of only 2.16 per cent over the same period last year. Possibly the only reason that can be attributed for a positive growth despite the adverse conditions in the market is the frequency of product launches.  If manufacturers were to slow down on that front, there is a very high chance that the industry would eventually plummet to post a negative growth rate.  

In terms of domestic sales, the industry recorded a growth of 4.57 per cent over the same period last year. While the Passenger vehicle segment posted a growth rate of 8.37 per cent during the same period, at face value, that sounds decent, however the segment-wise performance illustrates a clearer picture of the present condition of the passenger vehicle industry. Overall sales of cars in the domestic market have declined by -0.33 per cent, Utility Vehicles grew by 59.10 per cent and Vans grew by 3.71 per cent in the first three quarters of FY 2012 as compared to the same period last year. No doubt, we are also witnessing a change in buyer behaviour and that can be attributed to the figures as seen above.

With more takers for MPV/MUV/SUVs and manufacturers rushing to offer more products in this category, the era of the small car might be slowing down, however the practical UV segment has the potential to keep the auto industry sales figures in high gear. A case in point is the fact that Mahindra has overtaken Tata Motors to the number three spot in terms of sales despite the fact that the former doesn’t have a single small car in their portfolio. Practicality seems to be the flavour of the season and will most probably continue as the industry carries over into 2013. 

The two wheeler industry has managed to register a growth of only 4.09 per cent in the first three quarters of FY 2012. The driver of growth for the segment interestingly happens to be the scooter segment which posted a growth of 18.44 per cent. Just a few years ago, this very segment was written off and numerous players moved to motorcycles, however so far in FY 2012 motorcycles haven't been faring to well with just a 0.77 per cent growth rate.

Even the moped industry did marginally better than motorcycles and posted a 1.80 per cent growth! The main cause of the slowdown amongst two wheeler buyers can be attributed to the steep rise in ownership cost thanks to the severe hikes in petrol pricing. Never the less, the outlook for 2013 is better as the market is showing signs of stabilizing and there are a slew of new launches planned which should provide the impetus to boost growth across all two wheeler segments.

There is no doubting the fact that the outlook of the industry, based on the performance in FY2012 so far has shown signs for everyone to sit up and be rather concerned, however it is important to understand that a lot of this turmoil is the result of numerous factors including stalled investments due to governance issues, lackluster interest amongst businesses which has been further fueled by the depreciation of the Rupee against the Dollar. Secondly, the Government has been slow to react and the decisions haven’t truly been in line with what the industry required to boost growth.  While governance remains a concern, the good news however is that the industry isn’t just sitting idle.

Get latest updates on
the automobile community

Login Now

Opportunity exists, even in dire times, and that seems to be the mantra right now. Across the two and four wheeler segments we can expect to see over 70 product launches and this number might go higher if we include the introduction of new variants as well. Secondly, the debate on fuel prices seems to be attended to at the moment and finally, despite the domestic scenario, India is expected to post an economic growth between 5-6 per cent in 2012-13. It’s lower than before but looking at the global market, which is expected to report only a 3-3.3 per cent growth for the same period, India still stands on a reasonably strong economy which just needs the right impetus for major industries like the auto sector to prosper.

A lot depends on immediate governance decisions, however from an industry perspective, there is no better way than kick-starting the sales charts than by offering new launches. It is a bit of a long shot, however should the market gather momentum through these new launches, 2013 just might end on a positive note despite what the trade pundits state.