• News
  • Columns
  • Interviews
  • BW Communities
  • Events
  • BW TV
  • Subscribe to Print
BW Businessworld

From Joyride To Safe Drive

Photo Credit :

Never mind the potholes, the narrow lanes, the long waits in traffic jams, India's appetite for cars seems insatiable. Car prices may be up because of input cost increases, petrol prices may be high and interest rates on car loans may be climbing. But the sales numbers year-on-year show no signs of slowing.

A report by Ernst & Young, the global consultancy, says India's market will be 8 million cars by 2020, and 5 million cars by 2015 (and account for 10 per cent of the world's output). China and India could account for 35-40 per cent of the world's auto production. Which is why it seems odd that two global brands — Honda and Fiat — seem to be losing out.

Fiat does better with its engines: its engine plant exports about 100,000 units a year. Besides, Maruti Suzuki and Tata Motors' cars use Fiat manufactured engines. Even then, the decline in sales in 2010-11 (FY11) — 21,066 cars compared to 24,727 cars in FY10 — must be hugely disappointing. Company officials declined to comment for this story.
Honda's decline may seem a little more surprising, given the cachet of its brand, but the company's dependence on manufacturing only petrol cars may be a big reason. Sales of all its cars, the Jazz, the Civic and the City have declined. Sales figures for March look pretty bad: the Jazz sold just 1,532 cars, and the City sold 2,773. Compared to March 2010, overall sales have fallen — from 5,928 cars in March 2010 to 3,576 in March 2011 — by almost 40 per cent.

The company has gone through a rough patch, but there may be good news later this year for Honda sales, when its small car, the Brio, is launched. The car will be competitively priced (it is in the A2 segment), and being a Honda it might be able to attract buyers away from other manufactures in the same category.

"Automobile companies will look at a good mix of diesel, petrol and electric vehicles to complete their portfolio," says Kapil Arora, head of the automotive practice in India at Ernst & Young. "Diesel cars take advantage of the fuel subsidy, and automobile companies are investing in these vehicles currently." But once the subsidy is removed the difference between diesel and petrol engines may no longer be a factor, he adds.

If Honda and Fiat disappointed, Nissan and Volkswagen have done exceedingly well. Nissan has sold more than 2,000 cars this March; in March 2010 it had sold only 89 cars. Volkswagen has sold more than 8,000 cars, compared to only 987 cars last March. True, these two brands are in the first year of manufacturing operations, so initial sales are high.

The same thing happened with Fiat when it first introduced the Linea in 2009. Analysts point out that Fiat has suffered from poor sales because of less than average after-sales service, which has been slow when compared to other car companies. Fiat's cars are sold and serviced by Tata Motors dealerships; Fiat plans to invest in its own service centres soon.

Market leader by miles, Maruti Suzuki, reported the highest ever monthly volume, a growth of 28 per cent year-on-year in March, and 9 per cent month-on-month in overall sales. Of course, sales numbers were boosted by big discounts on its A-Star (Rs 22,000 in cash and trade-in combined), and exports also grew as the company expanded beyond Europe.

But FY12 may not look that good. Sales for the industry as a whole could slow to about 15 per cent compared to FY11's estimated 30 per cent. Companies such as Fiat and Honda will revamp their Indian business. Everybody wants growth on afterburn.

(This story was published in Businessworld Issue Dated 18-04-2011)