Rains bring smiles to auto industry

Till about a fortnight ago, the automotive industry was deeply concerned about sales prospects in rural India. This was particularly true for tractors and commuter motorcycles which were seeing numbers fall for over six months in a row.

Farm incomes were under pressure due to erratic weather patterns which destroyed crops. For bikes, the alarm bells began ringing last November but many people thought it was an aberration. However, as sales in the commuter segment continued to fall, it was clear that something was wrong.

Shower of hope The tractor industry, meanwhile, had already indicated that the going would not be easy. Predictions of inadequate monsoons only increased the gloom among automakers. However, the last couple of weeks have seen heavy rains in western India which has fuelled confidence that things may not be as dire. It now looks as if the north and central regions will also get their quota of rains on time which is the best piece of news for the farming community. The auto industry may be justified in not celebrating prematurely, however, the mood is distinctly more upbeat with June rains being substantially better than usual.

Rural power For carmakers, rural India forms an important component of sales even while big cities like Delhi, Mumbai, Bengaluru and Chennai remain critical growth engines. It has been proved beyond any doubt that customers in tier 2/3 regions have similar aspiration levels as their city counterparts with the money to boot. This was especially evident during the slowdown of 2008-09 when this part of the country led the revival story for automakers.

It also explains why luxury brands like BMW, Mercedes and Audi have expanded their retail network to include these towns while mass players like Mahindras, Maruti and Hyundai are already present in a big way. Honda and Toyota, likewise, are also setting up more dealerships in tier 2/3 centres as part of their business plans. More recently, Tata Motors indicated that it would go flat out in its rural strategy since its model range starting with the Nano would be ideal fits for buyers.

The two-wheeler industry is all too familiar with the dynamics of smaller towns/villages especially players like Hero MotoCorp, Bajaj Auto and TVS Motor Company. Honda has been stepping on the gas in its rural drive as these are important markets for its motorcycles. The company’s scooters are more urban-centric in their user profile and the challenge is to grow the customer base for bikes.

Automakers will be hoping that the monsoons do not lose their momentum and the country gets its complete quota in the coming months. It will spark a welcome revival in fortunes for an industry that was down in the dumps for two successive years and is just about crawling out of an abyss.