Will the fog lift for the industry?

Delhi in winter is not the best place to visit. It is not so much the low temperatures as the fog, which throws life out of gear. Especially if you are flying into the Capital, as there's every chance that your flight will get delayed and schedules go awry because of the fog.

The fog is an annual feature in North India. But the week-long Auto Expo, which opens on January 5, is not. It comes about once in two years and is an event that is increasingly becoming more important, given that India is one of the few markets about which almost all the auto-makers are gung ho.

Car-makers this time will be worried more than the fog about interest rates that have risen mainly because of the Reserve Bank of India's tight monetary policy, a dampened sentiment, and the possibility of an economic slowdown. All this have got car manufacturers re-working their plans.

Challenges for Maruti

There are other issues too. For one, the growing gap between price of diesel and petrol has made India a large diesel-car market. Because of this, almost all manufacturers drew up plans to come up with diesel versions of their cars, even if they were small hatchbacks. But, now, there is talk in the Government of some kind of a duty on diesel cars, which will force manufacturers to hike prices. Some manufacturers have put on hold their investments in diesel-engine facilities and are waiting for the Government to reveal its hand in the 2012-13 Budget before deciding what to do.

The mood this time is starkly different from what it was in 2010, when the automobile industry was upbeat. Sales then were booming and companies were finding it difficult to meet demand for some of the popular models. Ford had just then announced the launch of its hatchback Figo, getting into the growing small car market — a segment from which it had kept away for the better part of a decade since it started operations in India. The Japanese giants, Toyota and Honda, had the global unveiling of their hatchbacks at the last expo, signalling further competition in the already crowded small-car segment.

Maruti Suzuki, the largest passenger-car manufacturer, was to face further competition in a space where it ruled the roost. As it is, Hyundai Motor India, the subsidiary of Hyundai Motor of Korea, was snipping at its heels. The entry of the likes of Ford, Toyota, Honda, Volkswagen and General Motors, which has two hatchback models, would further increase competition.

Would Maruti, with its extensive national sales and service network, hold its own against the competition was the question experts asked. The entry of new players grew the market and Maruti continued to control a little more than half of the passenger-car market. It announced plans to increase capacity to 1.7 million units a year, from about a million level. Thanks to its envious sales and service network, Maruti Suzuki could tap into the rural areas to grow sales.

But then labour problems at its Manesar plant, its second and newer of the two production facilities, has added to the market leader's woes. Its sales have fallen in the last few months and prospects for the remainder of the financial year do not look too bright.

The sooner the better

Since the last auto expo, there have been other dramatic changes in the car industry. Peugeot of France has finally announced its decision to set up a plant in India. And, it chose Gujarat, which is fast emerging as a car-manufacturing hub to rival Gurgaon-Manesar, Maharashtra and Tamil Nadu. Ford, too, has started work on its second plant in Gujarat, moving away from its Indian home near Chennai.

Tata Motors has started producing the Nano in Gujarat. Renault, which has a joint facility with sister company Nissan near Chennai, is looking at Gujarat to set up a new plant to make small cars.

Despite the gloom, this year's auto expo will not be short of new launches.

There will be at least 50 new vehicles that will be showcased at the expo. Maruti will unveil its compact multi-purpose vehicle (MPV), the concept of which it showcased at the last expo. Ford has said it will unveil its new global car.

Hyundai will showcase a concept of its compact MPV and display the new Sonata. Bike manufacturers, too, will be present in full strength, including global brands such as Triumph.

Bigger one

The Confederation of Indian Industry and the Society of Indian Automobile Manufacturers, the two main organisers of the biennial auto expo, have said the expo this year will be bigger than the previous one. Pragati Maidan, the venue of the expo, is as it is bursting at its seams, ill-equipped that it is to host such a large event.

Notwithstanding the fog, who's who of the Indian automobile industry will be in Delhi over the next few days, outlining their plans, visiting competitor's stalls to size up what is on offer and striking a few business deals. Their main worry will be fog that seems to blanket them now will lift.

The sooner the better for them, as one of the largest employers will hope for better prospects in the months to come.

nramki@thehindu.co.in

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