It is a year the auto industry would rather forget. Sales across vehicle categories crashed, except for two-wheelers. Exports showed a healthy trend but that was not enough to alleviate the situation at home.
Poor sales were only one part of the story. Both vehicle and component manufacturers had to reduce their workforce and the first casualty was contract labour. While there are no exact numbers on the layoffs, given the complexities of counting the number of casual workers, industry sources say it could be upwards of 30 lakh people.
Consequently, companies have slammed the brakes on new facilities, as Maruti Suzuki did on its Gujarat plant. As Kenichi Ayukawa, Managing Director and CEO, said: “Our work in the new plant has been stopped except for the construction of boundary walls. We will start the flooring and assembly lines when we have a clear vision of the market.”
R. C. Bhargava, Chairman, Maruti Suzuki, has an interesting spin on the slowdown. “One of the reasons for poor sales in the urban areas is the fewer jobs created this year, especially by IT and manufacturing companies. These two industries are directly linked to sales of cars.” M&M believes the 3 per cent additional excise duty on SUVs has hit sales hard.
R. Sethuraman, Director, Finance and Corporate Affairs, Hyundai Motor India, said demand has been suppressed due to the general inflationary trend and the high fuel prices and interest rates. Hyundai, he added, is keeping costs in check through localisation and process improvements. The silver lining for the Korean car-maker is that nearly 40 per cent of its output is exported.
Silver lining Not every car-maker is completely despondent though. Kenichiro Yomura, President, Nissan India Operations, said his company had reasons to be upbeat, and introduced new products. “Though buyer sentiment was low, aspiration levels were on a high and that gave us the confidence to continue introducing newer products and brands.”
New launches have helped weather the slowdown. Honda’s Amaze, launched earlier this year, has been clocking sales of over 5,000 units each month. Ford, likewise, has received over 30,000 bookings for its EcoSport SUV.
While two-wheelers are doing better than cars thanks to the sustained demand for scooters and motorcycles, the worst hit is the commercial vehicle sector, where the key players are Tata Motors and Ashok Leyland. Some in the industry insist things were made worse by “converting a challenging year into a terrible one”.
A senior executive, who did not wish to be named, said OEMs cut corners to bolster sales. Freebies and “unsustainable discounts” were offered even as realisations dropped.
Today, with no recovery in sight, manufacturers find themselves unable to backtrack on the sops. Vehicle owners have lost out, too. What they gain from bargains on new vehicles is lost when they sell their used vehicles.
This vicious cycle has eroded manufacturers’ credibility, the executive said. It has also hit financiers. There are instances of loans being provided on the full invoice price of vehicles. As slowdown hit the sector, the bad debt problem began to loom for lenders.
(This is the fourth in a series of year-enders on different sectors of the economy.)
(With inputs from Ronendra Singh in New Delhi.)