Excise duties were slashed during the 2008-09 slowdown to boost demand for cars. Siam wants an encore of the ’09 script but the problem is a lot more acute now.

The Society of Indian Automobile Manufacturers, better known as SIAM, is worried sick about the state of the industry. And it has every reason to be, considering that sales of cars and two-wheelers have been seeing a free fall for some months now.

When presenting the performance data for August earlier this week, a distressed SIAM said it was imperative for the Government to reduce excise duties on vehicles if the industry had to get back on its feet.

“We are in a desperate situation. We need help from the Government,” a senior official was quoted in the media.

Does SIAM actually believe this is the only way out to revive growth in the auto sector? At least, most companies do not think so. Excise duties were slashed during the 2008-09 slowdown to boost demand for cars and the move worked. In addition, customers from smaller cities and towns, now popularly referred to as Bharat or the other India, contributed to the growth story.

As things began getting back on track, the Government also followed suit and gradually brought back excise duties to their original levels over two years.

Automakers did not complain either since demand was buoyant and buyers were not unduly concerned about a marginal duty hike.

Cheap fuel price regime

Today, SIAM wants an encore of the ’09 script while it is amply clear that the problem is a lot more acute. People are no longer in a frenzied buying mania simply because they are not in a position to do so.

Across sectors, the job market is looking increasingly wobbly as companies are struggling to grow their businesses. “Forget hiring, the name of the game today is firing,” an automobile executive told me recently.

Things are no better in Bharat where demand has nosedived thanks to the diabolical weather patterns which have played havoc with farm prosperity. Little wonder, therefore, that the auto industry is not too hopeful about the festive season making any big difference to sales.

Two-wheeler makers, in particular, are worried because the October-November period generally sees brisk buying from smaller towns which account for a large part of their customer base. “Things are not looking so great now, we can only keep our fingers crossed and hope for the best,” an executive of a motorcycle company said.

Fuel price hikes have often been cited as another reason for poor sales sentiment. But then, it is only petrol which has steadily become dearer over the last two years which has prompted buyers to make a huge beeline for diesel cars.

In the process, petrol models have literally been gasping for survival because there are virtually no takers.

Diesel continues to be heavily subsidised simply because the Government just does not have the gumption to go in even for a marginal price hike.

The result is that the automobile industry is making the most of a cheap fuel price regime, something that SIAM must acknowledge. To date, no tax has been imposed on diesel vehicles even though there has been tremendous pressure from some sections of the Government to do so.

If growth is not happening despite this comfortable cushion, there is clearly a bigger problem to contend with.

Tomorrow, if diesel prices are hiked, SIAM must actually welcome this, since its own carmaker members insist this is a better option than a levy (on diesel vehicles).

The truth is that the industry has had big breaks thanks to this diesel subsidy which has left petrol carmakers furious about this unfair price differential.

A missed opportunity

This is going to be a difficult year for the auto industry and some CEOs believe that it may just extend to the first half of 2013-14 too.

Companies are not unfamiliar with trade cycles and know that the ups and downs are part of business. The problem this time is that the Government is perceived to be completely devoid of any plan as it continues to battle one political crisis after another.

In this background, it is rather naïve for SIAM to assume that duty cuts will be the magic mantra for growth. The industry has been clocking impressive numbers over the last few years. It would be unrealistic to expect these levels to continue on a larger base and when the entire world is in the grip of a severe slowdown. SIAM must, instead, tell the truth like it is during its monthly data updates because this is what people would rather hear.

The perfect opportunity came up recently at its annual convention in New Delhi last week where the theme was “Auto Industry: India in Changing World Order.” Sure, there were some good speakers who had the audience engrossed but, by and large, the event was little to write home about. Post-lunch, people began to lose interest because the sessions were hardly gripping stuff. While seats began to get rapidly vacant, some in the audience happily drifted off to sleep.

Executives present at the SIAM convention were clearly unhappy that bigger issues on labour, availability of skills, the emissions roadmap, etc, were hardly discussed in detail.

Memories were still fresh of the mayhem at the Maruti plant in Manesar and participants were looking forward to brainstorming sessions on the subject.

The person seated next to me was an HR executive of an auto company who would have been happy to get some insights on the Maruti issue. After all, this is something that manufacturers realise will recur across other plants in India, as issues on contract labour remain unsolved.

This is what people expect from industry bodies such as SIAM at the end of the day. Times are changing and each day brings a set of new challenges to automakers. They need to be better prepared for issues such as emission schedules and availability of clean fuel, instead of the chaos and uncertainty that prevailed in the transition exercise of ‘10.

SIAM will have to contend with some interesting dynamics in the near future.


(This article was published on September 13, 2012)
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