Despite the delay, rains bring cheer to automakers

Our Bureau Mumbai | Updated on July 23, 2014

Manufacturers expect a turnaround in sales from October

It was barely three weeks ago when Mayank Pareek, Chief Operating Officer of Maruti Suzuki, spoke to Business Line on the company’s remarkable performance in June when sales were up 31 per cent.

It was also the time the country was gearing up for the grim possibility of a drought. Yet Pareek did not seem overly concerned. While demand in rural India was likely to be affected, Maruti planned to hone its niche marketing strategy, targeting specific customer categories, ranging from potters to priests.

Since then, monsoon rains have arrived after a month’s delay. Pareek and his team would be delighted because this would improve sentiments in smaller towns. By the end of the day, there could still be a shortfall in rain, but this is still a better prospect than a drought.

Other carmakers such as Hyundai, Ford, Honda and Toyota, which are betting big on sales in rural India, would be as pleased. None of them has the retail muscle of Maruti, but are quickly beginning to realise that tier II and III centres are important markets.

This was evident soon after the 2008 global slowdown. India managed to weather the storm, thanks to quick Government intervention on reducing levies that fuelled demand in smaller towns.

Improving sentiment

No wonder that the automobile industry is relieved that the monsoon is finally here. Over the last two years, car sales have been falling and things finally seemed to be getting back on track last month.

Manufacturers said sentiment had improved since the BJP came to power at the Centre, coupled with an extension in lower excise duties till the end of this year.

This was evident in June when car sales were up by 11 per cent to 2.19 lakh units (from (1.97 lakh units a year ago) and two-wheelers by 13 per cent to 12.6 lakh (11.16 lakh) units.

“The momentum was back, but we were getting quite concerned about the possibility of a drought. Thankfully, the monsoon has arrived now,” says the marketing head of a Japanese original equipment manufacturer.

Yet he is quick to add that there are still inherent problems to deal with such as the growing number of jobless people and the burden of inflation which are affecting homes across the country.

The two-wheeler sector would also have a reason for cheer.

Unlike cars and commercial vehicles, which saw sales slump last fiscal, scooters and bikes stood out and actually registered seven per cent growth. The next two months will give a clearer idea of the monsoon impact and if it is adequate to keep the buying momentum going for the rest of the fiscal.

The biggest challenge will be for medium and heavy trucks, which have faced their worst slowdown in recent times. Companies are hoping to see a revival from October and it is here that the quantum of rains and levels of rural prosperity will be the key.

Tractors on track with 10% growth

The tractor industry had factored in 10 per cent growth at the beginning of this fiscal even while talks of El Nino were doing the rounds.

This projection was based on a host of other parameters such as replacement of farm equipment and demand for specific tractors which go beyond farms. Last fiscal was a boom period for the industry with sales totalling 6.3 lakh units, a growth of 20 per cent. While rains doubtless play a role in generating demand, companies believe farmers are in a stronger space financially thanks to a higher minimum support price for crops.

In addition, companies have packaged their offerings better keeping in mind the varied applications of a tractor like a school/family vehicle. It is likely that this year will see sales closer to the seven-lakh-unit mark which would be remarkable for a cyclical industry.

This is a part of a series on how India Inc is responding to the monsoon situation

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Published on July 23, 2014
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