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S. Muralidhar

EVEN as the nation waits with bated breath for the onset of the monsoon on the Kerala coast in a few weeks' time, there is none who would watch its course more keenly than Corporate India.

For business enterprises in the organised sector, a lot depends on the growth in farm incomes that a buoyant agriculture would carry with it. Nothing illustrates this better than the fortunes of the automobile sector in the year just gone by, which witnessed one of the worst monsoons in recent times.

The just concluded fiscal was important for the domestic automobile industry. In terms of growth, the year 2002-03 may not be considered a milestone in the industry's checkered history. The markets that have emerged, the shift in customer preferences, the reemergence of local automobile manufacturers and the ability to post growth rates, even in a difficult year, are significant pointers that have a bearing on the industry's growth potential.

The industry as a whole registered attractive growth rates in two of the past five years, aided largely by the sharp jump in sales in the passenger car segment. After 13.86 per cent growth in 1996-97, a spurt of 16.03 per cent in 1999-2000 and 12.78 per cent growth in 2001-02, the automobile industry's 2002-03 growth of 14.8 per cent was no mean achievement.

Overall industry growth was bolstered by the performance of the commercial vehicles segment and by exports. However, market trends during the last two months of 2002-03 and the performance of the individual segments of the industry during the year have auto manufacturers worried and warrant a closer look.

In fiscal 2002-03, most automobile manufacturers had to contend with an increase in input costs. Together with this, the drought in many States, which could well be into the third year now, affected sales in the domestic market for a wide spectrum of auto companies.

In fact, the negative effect of the drought and the economic slowdown is evident in the fall in sales or the lower growth rates registered by a number of top manufacturers.

Year 2002-03 performance and the prospects for the auto industry this fiscal also came under the spotlight after the shocking fall in motorcycle sales year-on-year during March 2003.

The other reasons for a slowing down of sales in some of the other vehicle categories was, and continues to be, the uncertainty regarding the implementation of value-added tax (VAT) and the increase in tax incidence in some States.

How did these factors affect vehicle sales? Which sub-segments were affected most, and what trends may be expected in the future?

The average growth rate for passenger vehicles, which includes cars, utility vehicles and multi-purpose vehicles, was 4.88 per cent in 2002-03. In the two-wheelers segment, which includes scooters, scooterettes, motor cycles and mopeds, the growth rate was 15.94 per cent. These two prominent segments, comprised of largely mass-market products have in turn had a mix of under-performers and out-performers.

The fall in farm incomes, as a result of the drought and the resultant lower crop output, has clearly hit the sales of two-wheelers and the lower end of the passenger car segment. In fact, but for the eight per cent cut in excise duty effected in the Union Budget 2003-04, the growth in passenger car sales would have been lower.

For 2002-03, passenger car sales grew 6.41 per cent. However, in March 2003 alone, sales grew over 15 per cent compared to sales in the same month last year. However, this growth masks a decline in the key `A" segment, the entry-level passenger car segment.

Maruti Udyog Ltd's (MUL) flagship model the Maruti 800 took a hit of a 1,000 units in sales, despite the company's lowering of prices and improved value offering on the car. This, again, was despite a bit of cushioning from a near 45 per cent increase in sales in March 2003.

The Maruti 800 is a classic case in this segment that reflects the effect of lower farm incomes this year. The 800cc car is an affordable, popular car in the suburbs and rural areas. The company has also evinced interest in increasing the visibility for the product in the hinterland. Furthering these plans will now hinge on a revival of agrarian fortunes.

Another sub-segment in which MUL is a leader — multi-purpose vehicles — has also faced a dramatic 15 per cent erosion in sales during the year, largely due to the fall in farm incomes and the migration of buyers to other passenger car segments.

The effect of the drought can also be seen in the fall in sales of utility vehicles within the classification of number of seats not exceeding 13 and weighing up to five tonnes. Vehicles in this sub-segment are mainly used for passenger transport in suburban and rural areas. Sales of this class of vehicles slid about 13 per cent during 2002-03.

However, utility vehicles' sales overall grew by 9.65 per cent due to the introduction of new models and a general shift in consumer preference towards this vehicle class.

The industry segment that felt the biggest drag on sales as a result of the failure of the monsoon during 2002-03 was probably two-wheelers. Total two-wheeler sales grew 15.94 per cent. But the two sub-segments — scooters and scooterettes and mopeds — fell by 8.01 per cent and 18.54 per cent respectively. Moped sales have been yo-yoing since 1995-96 and recorded the highest fall of about 27 per cent in 2001-02, another year when the drought affected sales of this entry-level two-wheeler.

Sales of TVS Motors, the country's largest manufacturer of mopeds, fell from 2,67,387 units in 2001-02 to 2,45,684 units in 2002-03. The company's TVS-50 is a popular two-wheeler in the rural areas of Tamil Nadu. Other moped manufacturers, such as Kinetic Engineering and Majestic Auto, have also taken a sharp hit on sales during the year. In fact, Kinetic's moped sales halved during 2002-03.

Interestingly, however, another company whose products were till recently more popular in the rural areas and in the Defence sector, than in urban areas, has managed to post an increase in sales during 2002-03. Royal Enfield Motors, whose Bullet motorcycle is ubiquitous among wealthy farmers, would have been hit by the lower rural offtake had not the company introduced trendy variants of its bikes specifically targeted at urban buyers.

The new Thunderbird, the Bullet Electra and Bullet Machismo were three models that brought a wave of new urban customers to the company's showrooms. Sales of the Bullet, which holds a virtual monopoly in the 250cc-plus category of bikes, rose from 23,029 units in 2001-02 to 26,853 units in 2002-03.

Another product that was focussed at rural customers and as result faced an erosion in sales during the year was the Bajaj M80. While scooters as a category have been sliding, the emergence of scooterettes as trendy alternatives to mopeds have meant that the latter have been progressively inched out of the urban markets.

Future sales for mopeds have to come from the rural markets. Given the current status of rural income generation, a revival in sales for this segment is unlikely any time soon. This probably explains why companies like TVS Motors are unwilling to invest fresh funds at propping up two-wheelers in this sagging segment.

Within the automobile industry, the commercial vehicles (CV) segment has performed extraordinarily well during 2002-03. Growth in the medium and heavy commercial vehicles category was 29.08 per cent, with goods carriers contributing a higher 31.48 per cent hike in sales. Both the two large CV manufacturers Ashok Leyland and Tata Engineering had a near equal hike in sales during the year.

In the light commercial vehicles (LCV) segment, growth in sales was a healthier 32.4 per cent, again with goods carriers contributing a higher 33.36 per cent to the tally. Eicher Motors and Bajaj Tempo were two new contenders for the top slot in the LCV segment in terms of growth in sales.

As regards exports of CVs, the reverse was true between passenger carriers and goods carriers. Unlike the domestic market, passenger carriers contributed to a sharp jump in exports. On the other hand, goods carrier exports recorded a fall during 2002-03.

Similarly, in the three-wheelers segment, domestic sales of the goods-carrying variety grew a whopping 46.95 per cent. This growth in 2002-03 could have possibly come from two factors.

One, the increasing number of cities whose corporations have legislated that larger goods carriers, like trucks, be kept out for logistics purposes; and, two, the increase in the number of offerings in this category, especially from companies such as Mahindra & Mahindra and Piaggio Vehicles Pvt Ltd.

Again, as in the case of CVs, exports of three-wheelers reflected a reversal in trend. Passenger carriers contributed to a near tripling of exports from 14,521 units in 2001-02 to 42,878 units in 2002-03. An indicator of the increasing popularity of these vehicles in South East Asia and supposedly even in the U.K.

Two other automobile categories that witnessed an increase in exports were motorcycles and passenger cars. Instead of the feared flood of cheap imports from China, Indian motorcycle makers have seen a consistent increase in exports. With the domestic market also showing signs of slower growth, large, cost-competitive manufacturers like Bajaj, Honda Motorcycle and Scooters India and TVS Motors will continue to increase exports.

Export of cars is also likely to grow with the increase in the number of multinationals that seek to source vehicles from their Indian subsidiaries. Examples such as Hyundai's Indian plant being made the exclusive sourcing point for the Santro and the increase in the export of the Ford Ikon kits from the country are likely to be replicated by the other manufacturers.

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