CAR MAKERS - EVERYTHING HINGES ON FESTIVE DEMAND

By Ruma Dubey

Festivals and marriages are the only time when people generously loosen their purse strings. All the pent up desires break barriers and there is usually a flood of demand for all and sundry – right from cosmetics, clothes, white goods, buying a new house, home décor , cars and more. So naturally, it is the time when companies also make the most of this ‘pent up demand’ and help people spend faster wit enticing discounts and sales.

Diwali, more than a festival of lights is now a festival of hope for India Inc. Companies are hoping that sales will go up and give its earnings the much needed color of black. In the bygone Navratri season itself, many apparel companies have reported a jump in sales, more so than what was seen last year. They are hoping that the same spirit will also be seen during Diwali. Manufacturers of washing machine, microwaves, refrigerators, TVs, are also pinning all their hopes on getting a boost in their sales during Diwali. Mobile phones too are expected to see a jump in sales.

Over and above all these companies, it is the automobile companies which are hoping to see to see Diwali light up their earnings. This is also the time when auto companies brace for the best season of the year. The second half is usually their best, with festivals, New Year and then the fiscal year tax rebates.  Not surprisingly then, the Indian car market in mid-October saw six new car launches in October–  Nissan’s Terrano, a New Range Rover Sport, Skoda Octavia, Volkswagen’s  Vento GT TSI, BMW’s  5-series facelift and Toyota Innova’s new made-over version. Toyota also launched a limited edition of its sports utility vehicle Fortuner TRD Sportivo. Ashok Leyland, the country's second largest commercial vehicle maker launched its new range of Intermediate Commercial Vehicle range under the Boss brand. TVS launched what they described as "Guru of Indian Scooters", TVS Jupiter, to capture the market in the "Male Segment" for the self employed and traders. Bajaj Auto, India's second-largest motorcycle maker, expects to sell more than 4 million vehicles in the current fiscal year despite the fact that sold 961,330 vehicles in the quarter ended September, down 8% (YoY), surely banking all its optimism on the festive demand.

And this is when the question pops into the mind like a bulb getting switched on – is there a demand for so many cars?  As per data from SIAM,  the  overall domestic sales during April-August 2013 declined by (-) 0.86% (YoY).  Passenger car sales was down 5.8%, utility vehicles sales dropped 3.11% and vans dropped steeper by 6.24%. The overall Commercial Vehicles segment registered a de-growth of (-) 12.71%. Three Wheelers sales declined by (-) 4.11%, Passenger Carriers and Goods Carriers declined by (-) 3.55% and (-) 6.53% respectively in April-August 2013 over April-August 2012. The only sector to have registered a positive growth was two wheelers but that too just about it, showing a growth of 0.72% and that too, in this sector, it was only scooter sales which helped push the sector into the green.

 Car sales have taken a beating due to much obvious reasons – increase in price of fuel and soaring interest rates. Maybe we could see a jump in CNG cars? The other reasons are the overall pessimism in the economy and rising inflation, leaving very little money to make such bug ticket purchases. But car makers feel that the bad patch is now over and moods are turning around. High price of fuel is something which we all will have to live with but the growing affluent middle class now feels that a car is a necessity. And with many having put off buying a car for so long, could now let go all this pent-up demand.

Kudos to the optimistic spirit of the car makers but the fact remains that they are sitting on a huge pile-up of inventory and even till end of Sept, it had not cleared up. Companies also announced a cut in production days, some going a week long shutdown for “maintenance” and some cutting down a day or two each week. Dealers say that for the first time in many years, almost any car can now be bought right off the shelf, with no waiting period. Dealer inventories for some manufacturers have risen to almost three months of stock, the highest levels since the slump of 2008-09. Maruti Suzuki is currently holding inventory for over six weeks compared to its average of three weeks though the company states that it is normal to hold stocks ahead of the festive season. Toyota, Volkswagen and Nissan are said to have inventories much higher than Maruti, Hyundai and Ford. Federation of Automobile Dealers' Associations (FADA) estimates the passenger vehicle makers are sitting on inventories worth some R20,000 crore, roughly four lakh units. That's more than twice the average inventories seen at this time of the year.

Though there are festive launches and discounts, the underlying moods are somber and this festive season, despite so many new cars, car companies might not have much to celebrate, with the exception of Maruti. Yes, in the auto sector, Maruti is the stock to watch for.  Tractor sales could also see a spike up as harvest is expected to be good, putting good money in the hands of farmers.

PS: So many new car launches? As such we are stuck for hours in traffic, what happens when more cars come onto the road? Come to think of it, traffic is like our Indian democracy, every time you move ahead, you think you are getting on and going somewhere, only to hit another traffic jam!