The Hindu Business Line : Carmakers gear up for a bleak 2009

Little to cheer
The US big three auto majors inching towards bankruptcy was a big blow to the industry.
Global auto majors have announced scaling down of their planned operations in India.
With banks reluctant to lend and the stock market collapse, buyers are in no mood to buy.

Vanishing optimism: Mr Ratan Tata, Tata Group Chairman, unveiling the Nano at the 9th Auto Expo in New Delhi on January 10.

Murali Gopalan

Mumbai, Dec. 25 When Mr Ratan Tata unveiled the Nano at the Delhi Auto Expo in January, nobody would have dreamt that 2008 would end on such a disastrous note for the automobile industry.

Today, car companies admit that 2009-10 will be one of their toughest years with sales likely to fall by 25 per cent across various segments. Most of them are confident, though, that things will improve by mid-2010.

Compare this despondency to the mood at the time of the Nano launch, which was buoyant and optimistic as the Rs 1-lakh car caught the fancy of global automakers. The Tata group Chairman was clearly the man with the Midas touch. His company soon acquired the iconic British car brands, Jaguar and Land Rover (JLR), from Ford in a staggering $2.3-billion deal. It could now boast a portfolio ranging from the Nano to luxury global brands.

Ancillary suppliers were also salivating at the prospects of big business with the Nano. After all, there were 1,50,000 cars planned for the fiscal going up to 5,00,000 units by 2011-12.

And then a typhoon struck in the form of Ms Mamata Banerjee and work at the Singur plant in West Bengal gradually came to a grinding halt.

By then, Tata Motors had already pruned the Nano numbers for this fiscal to 96,000 units and as the impasse continued, this was reduced further to 50,000. Mr Tata then took the momentous decision to move out of Singur and decided that Gujarat would be the new home to the Nano. Today, sources say that barely 10,000 cars will roll out in the February-March period and once the new plant is in place, 2009-10 could see numbers grow to one lakh units annually.

Credit crisis

While the move from Singur was a severe setback to the Nano’s production schedule, the worst was yet to come in the form of the Lehman collapse in the US. As the global financial system came crumbling down, more bad news erupted with giants such as General Motors, Ford and Chrysler inching towards bankruptcy. The world automobile market was suddenly looking exceedingly vulnerable when a seemingly invincible colossus like Toyota went on record to state that it was going to record losses for the first time in its 71-year-old history.

All this only brought more bad news to Tata Motors whose new possession, JLR, needed a lifeline in the form of funds. The horrible spectre of layoffs at the plant was suddenly turning real and all eyes are now on the British government to lend £1 billion to Tatas to keep operations afloat.

Bank loans dry up

Observers of the automobile industry argue that India had no reason to be so badly impacted by the global crisis and place the blame squarely on private banks. The two-wheeler industry was already facing the heat of limited access to funding for nearly two years now and once this was extended to cars, sentiment just took a nosedive.

Buyers suddenly realised that they had to cough up more margin money at higher costs. They were already a harried lot because of the Sensex which tanked in reaction to Lehman and the chaos that followed with bigger names adding to the mess. People lost big money in the stock market collapse and were in no mood to buy a car.

The private banks did little to cheer up sentiment as manufacturers and dealers looked on helplessly. As the year draws to a close, the priority now is cleaning up 2008 stocks through offering generous discounts but even this may not do the trick in wooing customers who are paranoid about spending money.

Scaling down of plans

The year also saw Renault and Nissan announce scaling down of their operations in Chennai which kick off in end-2010. Most multinational car companies insisted that their global operations would not impact India, especially GM and Ford.

Toyota also seemed to suggest that its plans for the country were on schedule but its ancillary suppliers are not so sure. Honda has already delayed the commissioning of its Rajasthan plant for the Jazz, a fallout of the slowdown, and will use its present facility in Noida, Uttar Pradesh, for the rollout.

Market leader Maruti has seen volumes fall and will keep a careful watch on 2009 to decide if any shutdowns are warranted. Mahindra & Mahindra and partner Renault had little cause for cheer with the Logan and will face a huge challenge in 2009. The Indian company is on course with the launch of its Xylo multipurpose vehicle but has limited production to 25,000 units annually. As for Tata Motors, it will bank on the new Indica to push the sales momentum with, of course, the much awaited Nano.

The following year will see Volkswagen commission its Chakan plant near Pune and the first offering will be the Skoda Fabia which is already being assembled at the Czech automaker’s Aurangabad facility. Volkswagen is optimistic about India despite the slowdown and, along with Skoda, will develop a joint platform for cars below Rs 5 lakh.

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