The Hindu Business Line : Aam aadmi to ride the auto sector

The real winner is the small car buyer who will have to pay Rs 5,000 to Rs 20,000 less for his purchase. — Mr Kapil Arora, Partner – Automotive sector, Ernst & Young

D. Murali

Chennai, March 3 Excise reduction, combined with a more liberal credit availability should see, over the next few quarters, a reversal of the recent slowdown in demand, says Mr Kapil Arora, Partner – Automotive sector, Ernst & Young. He even sees an eventual return to positive growth and profitability, as price concessions are passed on to customers.

“For now, the aam aadmi must be smiling,” he observes, in an e-mail exchange with Business Line hours after the presentation of this year’s Budget.

“Overall, the Indian auto sector as well as the consumer are likely to be pleased with the Budget provisions. The overflowing optimism of the sector in the last two years had recently begun to show signs of cracking and the warning signs were increasingly visible,” says Kapil.

Excerpts from the interview.

What were the major concerns of the auto industry?

While the macro factors (i.e. a strong economy reflected in increased consumer spending and growing disposable incomes of a vibrant and an aspirational middle class) were broadly intact, the last nine months had seen a significant slowdown in the two-wheeler segment with motorcycle sales down over 12 per cent year-on-year.

Limited availability of consumer finance coupled with a rising default rates threatened to put the brakes on this segment’s growth.

In the commercial vehicle segment too, medium and heavy vehicles had registered a slowdown.

On the industry’s demands, pre-Budget.

To stimulate demand and provide a much-needed boost to this sector, the auto industry had a long pre-Budget wish-list and several expectations of policy support from the Finance Minister.

Their key demands included the adoption of a uniform excise structure of 16 per cent across all passenger cars and utility vehicles, reduction of the excise duty rate for two- wheelers to 8 per cent to arrest the declining offtake, providing benefits for development of hybrid technologies and extending liberal credit to the agricultural sector for purchase of tractors.

On what the Budget has delivered.

With the central aam aadmi theme clearly visible throughout his speech, elections a year away, and a sharper focus adopted on broad-based inclusive growth, the Budget proposals have successfully delivered much of what was expected for the auto sector.

First, the proposed reduction in excise duty from 16 per cent to 12 per cent for two-wheelers, three-wheelers and small cars will provide the anxiously awaited relief and growth impetus.

While the two-wheeler buyer will benefit from price cuts ranging from Rs 1,000 to Rs 3,000, the real winner is the small car buyer who will have to pay Rs 5,000 to Rs 20,000 less for his purchase.

However, the larger passenger car manufacturers will obviously be a little disappointed at being excluded, as this will widen the price gap between their bigger models and the smaller segment.

Second, the reduction in excise duty rate on buses to 12 per cent (from the previous level of 16 per cent) should spur growth in mass public transportation models across the country’s rapidly growing urban footprint.

However, for the commercial vehicle segment, which transports more than 60 per cent of the total freight handled, some specific measures would have been appreciated.

http://InterviewsInsights.blogspot.com

The auto industry would have most certainly wanted notification of environmental, safety and vehicle replacement norms and further reduction and rationalisation of excise rates across the board.

On the steep reduction of excise duty on hybrid vehicles, from 24 per cent to 14 per cent.

Yes, this has been done keeping an eye on the ongoing global debate on climate change, though a commercially viable Indian mass-market for hybrid and alternative fuel vehicles will take at least another 5 years to evolve and mature.

This incentive should encourage vehicle manufacturers to make greater investments in this area in the future.

Do you expect the domestic small car segment to witness the most intense market action?

That’s for sure, during the next year. The introduction of a car priced at $2,500 later this year will certainly boost sales volumes. Several first-time car buyers will graduate from the two-wheeler market to the new aggressively priced entry-level small car segment.

While the domestic passenger car segment had delivered growth of over 20 per cent last year, industry watchers are projecting this year’s growth to be between 12-15 per cent, translating to volumes of over 1.5 million vehicles.

The second-hand market too will be impacted by the price reduction and the wider choices available to customers will drive prices downwards. Most major market players have initiated plans to add significant small car production capacities over the next 18 months.

Consequently, India will also emerge as a global hub for small car and component production.

More Stories on : Interview | Budget | Automobiles

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Farm loan waivers: The figures don’t add up

Ideas beyond allocations

Budget 2008-09 — Politically correct, but questions remain

After the debt waiver, what?

Reworking your portfolio

Why coal needed a regulator

Aam aadmi to ride the auto sector

`Exceptional circumstances called for alleviating measures'

Loan waiver

Budget and textiles