Year of anxiety and high drama for auto sector

It is truly amazing that so much action was seen in a single year that left India’s automotive industry gasping for breath.

On top of the list is demonetisation, a subject that continues to generate debate and furious arguments. On November 8, the Indian growth story suddenly faced a formidable, self-imposed headwind when the Centre decided to ban high value currency. When over 85 per cent of cash in the system was sucked out overnight, the implications for the economy were predictably severe.

For the auto industry, in particular the two-wheeler segment, felt the heat especially in smaller towns and villages, where purchases are largely made by cash. While November was a difficult month, it is almost certain that December and January will be washouts too. One of the most significant fallouts has been a temporary halt to the scooter juggernaut, where Honda rules supreme with the Activa.

It has been equally challenging for tractors where farmers have their backs to the wall and this is where companies like Mahindra & Mahindra will have their work cut out. The industry is now hoping that the Budget on February 1 will have some good news in the form of tax breaks, which will bring back buying sentiment. Beyond that, implementing the Goods and Services Tax on April 1 may also help, though this remains a million dollar question.

April 1 will also see the Bharat Stage IV emission norms extend throughout India, which means that there will be a surge in truck buying prior to that date. Fleet operators will be naturally keen to steer clear of buying more expensive trucks and the January-March quarter of 2017 will see some brisk sales in the commercial vehicle segment. As a result, April-September is expected to be lacklustre, though companies are hopeful that demand will pick up subsequently.

On the subject of fuel, the other unpredictable issue pertains to the pricing of petrol and diesel. For some weeks now, global crude prices have begun climbing to levels of $55/barrel which means that there will be a corresponding increase back home in India. For the last two years, the benign state of fuel prices has been the best piece of news to the Centre but this could change once crude gets dearer. How customer sentiment will be impacted in car buying remains to be seen in this new scenario.

Sticking to the subject of fuel, diesel emerged the villain of the piece for a large part of 2016, thanks to the Supreme Court’s decision to ban registration of 2000cc plus diesel vehicles in New Delhi. What came into force in December last year stretched to over eight months and derailed sales of Toyota and Mercedes-Benz in the Capital. The ban has since been lifted but there is no telling what could happen even as companies are now beginning to quickly embrace petrol as the safer alternative.

Beyond demonetisation, the other big-ticket news was the ouster of Cyrus Mistry as Chairman of the Tata Group. The spat that followed with his predecessor, Ratan Tata, kept the industry grapevine buzzing even while the jinxed Nano, the people’s car, was back in the spotlight. It had briefly resurfaced as a subject of discussion some months earlier when the Supreme Court decreed that the land at Singur (the original site for the Nano project) had to be returned to the farmers.

While this was deemed a victory for the West Bengal government, the Nano featured again in the Mistry-Tata slugfest. It is no secret that this was Ratan Tata’s pet project that just failed to take off. The fact that it was still being produced became the bone of contention in this corporate war even while more recent launches like the Tiago have put the Tata car business gradually back on track.

While on cars, the Chinese were in the news as a host of companies began scouting for land to set up shop here. It was SAIC Motor Corp that was tipped to partner General Motors nearly five years ago for a full-fledged India drive. Nothing much materialised eventually but SAIC is now keen on a greenfield facility as also other Chinese comapnies such as Changan Automobile and Great Wall Motor Company. Perhaps some announcements will be made in 2017!

Likewise, South Korea’s Kia Motors is tipped to make public its India plans soon where it will join group company Hyundai Motor, which has had a successful 20-year run here. In Europe, the PSA group is also working on its India script where Peugeot will lead the way sometime in 2018. The French carmaker was among the earlier entrants here in the 1990s but exited operations abruptly in 1997. The year also saw a lot of action in Japan’s auto space, which was clearly intended at consolidation. Nissan Motor threw a lifeline to a beleaguered Mitsubishi reeling from the fallout of a mileage fudging scandal. Interestingly, arch foes/rivals, Honda and Yamaha have decided to team up for small scooters in Japan, which is a minuscule part of the two-wheeler market.

The bigger news pertain to a possible equity alliance between Toyota and Suzuki where an announcement could be made in the coming weeks. For the moment, the duo has spoken of collaborating on R&D but industry observers feel that this could well stretch to a stronger partnership.

If this were to happen, there will naturally be some implications for India where Suzuki is the monarch with Maruti while Toyota has just not been able to crack the small car market. It is taking steps to remedy this through a new emerging markets strategy with its subsidiary, Daihatsu, but Suzuki will be the real big one.

With just 24 hours to go before the curtains come down on 2016, the auto industry will be hoping that it is spared surprises like demonetisation and diesel bans in the new calendar.

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