Companies

Downhill drive for auto sector in 2011

Roudra Bhattacharya New Delhi | Updated on March 12, 2018

More vehicle makers are queueing up to offer diesel variants.

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The year has been a roller coaster ride for domestic carmakers. The joy of 2010 – highest-ever sales growth of 27 per cent – proved short-lived. An unexpected reversal in 2011 slowed growth to three per cent.

Even as India became the sixth-largest vehicle producing nation, crossing Brazil this year, several fresh challenges arose for the industry. There was a sharp demand shift towards diesel vehicles, which caught many manufacturers unprepared. Labour trouble across the country led to production delays. Meanwhile, rising interest rates, high commodity prices and a weak rupee led to increased model prices and subdued demand.

“The January-March quarter was the highest ever for the industry, but after that there was this dramatic fall – something I haven't ever seen. The impact of rising interest rates and fuel prices came by April-June and remained through the year,” Mr Shashank Srivastava, Maruti Suzuki's Chief General Manager of Marketing, told Business Line.

Diesel demand

A big surprise of 2011 was the shift of demand towards diesel vehicles. Diesel car sales grew 24 per cent from April onwards, while petrol car sales fell 16 per cent. Where available, the demand for diesel model is now over 80 per cent.

The shift to diesel vehicles happened after subsidised petrol prices were freed in June, while diesel prices remained Government-controlled. This led to the price gap between the two stretching to over Rs 25, making diesel cars far cheaper to run.

New Models

Diesel and new model launches largely sustained the growth. Though many new cars were launched this year, a few such as the Hyundai Eon and the Skoda Rapid met with limited success. Others such as the Hyundai Verna, the new Maruti Swift and Mahindra's XUV 500 became wildly popular.

“Interesting things happened, like the success of SUVs and MUVs in a difficult year, while the jump to diesel has been a struggle,” said Mr Kumar Kandaswami, Senior Director at Deloitte Touche Tohmatsu India.

While the small car segment with an over 75 per cent market share took the brunt of the sales slowdown, the premium and ultra-luxury car market boomed in the year. Luxury carmakers Mercedes-Benz, BMW and Audi have all posted growth above 60 per cent, while new entrants such as sportscar legend Ferrari, Aston Martin and Maserati joined the fray.

Labour

While Maruti's problems beginning in June at its second Manesar plant was the biggest labour-related issue, worker agitations were also seen in Hyundai's Chennai plant, as well as General Motor's Halol facility. Issues ranged from wage revisions, union registrations and better working conditions.

“Labour issues will continue. We have a shortage of skilled manpower and a large amount needs to be spent on training,” said Mr Kandaswami.

The industry has asked for an overhauling of India's labour laws, which gives more flexibility to hiring and firing workers in difficult times. The manufacturing sector currently has an exceedingly high share (up to 90 per cent) of contract workers, which leads to tensions with permanent workers who enjoy more benefits.

Outlook

After a tumultuous year, the industry expects sales to start picking up from the mid-2012, with a hope that interest rates would be rolled back to boost manufacturing.

“If there is no clarity on diesel in the Budget, there will be a ‘dieselisation' of the car market. Voices from the industry have now become shrill in asking for future guidance, so that the right investments can be made,” said Mr Srivastava.

>roudra.b@thehindu.co.in

Published on December 27, 2011

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