Global automakers await new political regime

The automotive industry will be watching the election results unfold in India with great interest today. And if the exit polls aren’t any indication, the prospects of an NDA Government at the helm, it seems, would be the best piece of news to companies across the world.

Most CEOs believe that the slow pace of growth last fiscal is an India-induced problem where the Congress-led UP alliance did little to improve sentiment. There was some damage control in February’s Interim Budget when the Finance Minister slashed excise duties for cars and two-wheelers but this did not help either. Industry captains believe that the lacklustre response possibly has to do with the fact that customers are in ‘wait-and-watch’ mode till the new Government is in place.

Will this actually make a difference? Is Narendra Modi really the proverbial messiah who can pull the industry out of the abyss it has sunk into? At one level, there is an issue of basic economics at play when a yawning fiscal deficit and poor growth are not going to disappear overnight. Inflation is hurting homes and jobs are becoming increasingly difficult to get. In such a scenario, it is only logical that people are not going to invest in a car. This, in turn, explains why the sales momentum continues to be tepid.

To diehard optimists, Modi is the man who made the Tata Nano and Ford projects a reality in Gujarat. In the pipeline are Honda Motorcycle & Scooter India and Maruti Suzuki which have announced investments for Gujarat. “Modi understands what the business community needs and will ensure that the auto industry gets back on its feet quickly,” a top CEO says.

It is a view that finds resonance with the global automotive community too. Most of them were on a high till two years ago when sales soared but have since imploded even as reports of the Government losing control began doing the rounds. In addition, taxation issues concerning some multinationals have resulted in a growing sense of paranoia and uncertainty on the India story.

Yet, a clutch of CEOs like Carlos Ghosn of Renault-Nissan who visited the country last year, thought too much was being made of things going out of control in India. From his point of view, the auto industry was inherently cyclical and, in any case, it was not as if the rest of the world, and Europe in particular, was in great shape.

The truth, though, is that most global automakers are not as buoyant about India as was the case till 2012 when sales were brisk and there was a sense of optimism all around. Across the world, people see the country as rudderless with reports of scams hitting the headlines almost everyday. This is why they believe a change in government with Modi at the top will at least begin to pave the way for change. “Nobody is so naïve to think that everything will turn hunky-dory overnight. They believe that the NDA government will at least put the rebuilding blocks back in place for the industry,” a top executive of a two-wheeler company said. This would essentially mean putting the growth levers back for the manufacturing industry which, in turn, would generate jobs and positive sentiment.

Of course, nothing will perhaps be known till later today. Eventually, the person who takes charge as Prime Minister will have to reckon with a wobbly economy and high prices. There is the added threat of an El Nino phenomenon which could wreak havoc with the farming community. And if crude prices were to spin out of control as they did in 2008-09, things could get terribly sticky. For the moment, though, nobody is really thinking so far ahead. The general consensus within the auto industry is that the present UPA government has just messed up the economy so badly that things can only get better from now. Is this a case of misplaced optimism at a time when the economy suggests otherwise? Or perhaps a change at the top may just usher in new energy levels that the industry desperately needs. It will be the best piece of news in a long, long time.

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