Auto Makers Are Now The Sultans Of Swing

In our previous article on the automobile industry, ‘Auto Sector Slowing As A Result Of Costlier Fuel And Funding’, we covered the automobile industry as a whole, considering the segments passenger vehicles, commercial vehicles, two-wheelers and three-wheelers, giving our readers a broad perspective on the performance and outlook of the industry.

When we go deeper into analysing the passenger vehicles segment, we get a better view of how grim the industry looks. The growth for passenger vehicles during April-May 2012 was 8.42 per cent over the same period last year. Passenger vehicles constitute of passenger cars, utility vehicles and vans which grew at 3.10 per cent, 51.05 per cent and -5.31 per cent respectively. While the lower overall growth estimates is a factor to be worried about, there is larger concern over how companies are managing production, supply and competition. There is a need for companies to strategize based on the dynamism of the market. A failure to do so would result in waning figures.

Production And Supply

A large chunk of components for auto manufacturing companies are imported. A swiftly depreciating rupee has been deeply cutting through the margins. The rupee today hit a record low by moving beyond the 57 level. The rupee has been low against the yen as well with rates at 0.7116. Manufacturing these components or sourcing them locally will significantly benefit makers. Companies like Toyota and Nissan are considering the option to manufacture gear boxes and engines locally to reduce import burdens. It would majorly save costs and boost margins.

Meanwhile, other than cross-currency fluctuation, the increasing fuel prices have changed the ball game for car makers. The increasing fuel prices have been changing the demand patterns among consumers. The most recent petrol price for Mumbai stands at Rs.76.45 per litre while diesel is at Rs.45.99 per litre. The demand for diesel cars has been proliferating as fuel prices continually soar, making consumers increasingly skewed towards cheaper fuel. In the previous fiscal, diesel cars accounted for 50 per cent of the total sales. This figure was much lower in the earlier years.

In April 2012, the diesel segment witnessed growth of 59 per cent as compared to last year. For Maruti Suzuki, it grew at a gigantic 80 per cent. In the case of Ford, its sales suffered because it was not able to supply models running on diesel in the first quarter of this calendar year. It acted on this and increased its diesel engine capacity in April this year.

Automobile manufacturers are finding it difficult to cope with this sudden change in their demand patterns. The production of petrol cars is being held on pause by companies like Toyota Kirloskar Motor, Fiat and Maruti Suzuki to avoid a stock pile-up. At the same time, diesel capacities are being boosted to cope with the increase in demand. Adjusting production and supply according to consumer needs and increasing efficiency would provide companies an upper edge. However, with the possibility of the government announcing a hike in the excise duty levied on diesel cars, its sustainability and demand are still doubtful.

Competition

The small car market in 2010 saw changes that shook dominant players like Maruti Suzuki and Hyundai. Volkswagen, Ford and General Motors took on the market leaders by launching their small cars and gaining volumes. These three foreign manufacturers have been drying up over the last five months. They witnessed considerable amount of success and gain in market share but that declined on the launch of the new Swift by Maruti Suzuki. From January to May, the market share of Swift’s diesel model went up to 31 per cent.

Moreover, GM’s sale suffered largely because they did not have a single launch last year. They are looking forward to launch a couple of models to up their game further this year. Ford too will launch EcoSport to increase volumes that saw a slump because of the launch of Swift.

The sales of utility vehicles rose by 51.05 per cent in April-May this year compared to the previous year and this is evident by the success of XUV500 by Mahindra & Mahindra. Even the utility vehicle segment of Maruti Suzuki saw a growth of 603.1 per cent in the same period. The New Fortuner too grew by 108 per cent, benefiting Toyota to a large extent.

From the existing and developing market conditions, it is necessary for auto makers to play their game right by making their production and supply efficient and by making moves that would capture maximum gain from consumer demand. Analysing how they play their game would give a better idea about their performance and their potential to provide returns than assessing them on an individual basis.

Domestic Passenger Vehicle Sales Growth For May 2012

*Higher figure resulting from a lower base in the previous year.