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Raghuvir Srinivasan

IS GROWTH beginning to slow down in the passenger car market? Latest figures reveal an 18 per cent growth in 2004-05 compared to 29 per cent in 2003-04.

Only last week, this newspaper carried a report, based on a study by the Paris-based International Organisation of Motor Vehicle Manufacturers, OICA, about India being the fastest growing market among the top 15 passenger car-producing countries in the world in 2004.

To be sure, an 18 per cent growth rate is still impressive. Last year's whopping growth came on a much lower base and the base effect had to kick in sooner than later.

However, what should be worrying is the trend in passenger car sales over the last three months since January. Overall sales growth in this period was just 7.5 per cent with February actually recording a fall of 4.24 per cent. But for the acceleration in March (up 19 per cent) the fourth quarter growth would have been still lower.

Factors ranging from Budget expectations to price hikes have been mentioned as the causes for this sudden fall in growth rate.

The last few months saw the launch of fresh models such as the Ford Fusion and the Hyundai Getz but they were not able to rev up the market. Of course, Toyota's Innova did manage to secure bookings for more than a year's production capacity. But it should be remembered that the Innova replaced the Qualis and at least a part of the bookings could be the base demand for the Qualis now being transferred to the Innova.

Is the market maturing?

The available trends seem to indicate that the market is beginning to mature. No more can a manufacturer "re-launch" existing models with cosmetic upgrades and hope to take the market by storm.

Model fatigue appears to be setting in, especially in the compact car segment, which still has the largest volumes and accounts for one out of every two cars sold in the country. The Zen, the Santro and the Indica are all models that have been around for more than five years now, with the Zen going back a decade.

Clearly, there is room for an all-new model in this segment priced attractively to draw in the numbers. What is needed is a model that will do to the compact segment what the Tata Indigo did to the entry-level C segment. Built well and priced attractively, the Indigo succeeded in breathing life into a segment that almost died along with the Esteem.

Today, thanks to the Indigo, the segment is growing as fast as the compacts. Even the Esteem, which was upgraded, has rediscovered its volumes.

This could happen to the compacts by 2006-07, when Maruti is expected to launch its new model designed for India. Hyundai is also planning another new compact model to be produced at its second plant by the same time.

And Tata Motors is reported to be working on its next car platform to replace the Indica. This is, of course, apart from the "people's car" that it is planning to launch in the next couple of years.

These models, when they arrive, could once again stir up the market. They could indeed be the platform for the industry and the market to go on to the next level.

Near-term hurdles to growth

Meanwhile, in the near term — the next two quarters — the industry could run into speed-breakers that may slow growth further. Indeed, the first quarter sales for this fiscal could be tepid given the uncertainties over the value added tax regime and its impact on prices.

Rising input costs, especially of steel, does not augur well and car manufacturers may have to pass on more price increases to the market. This, along with sustained high fuel prices, could prove a dampener for car sales.

The upgraded fuel emission norm — Euro III in 11 cities and Euro II in the rest of the country — has brought its own uncertainties.

Car prices have also increased due to the upgradation carried out on the vehicles to stay in line with the new norms. Of course, some of the players are offering large discounts that compensate for the increased price but it remains to be seen how long they will be able to sustain it.

The trends in the first half of this fiscal could well determine whether the industry surpasses the 18 per cent growth of 2004-05 or just manages to hang on to that level again.

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