Buying A Car More Like Grocery Shopping

True that desperate times call for desperate measures but there is a line of distinction between desperation and ridiculousness which many car makers are failing to see.

The passenger car segment has been whacked a number of times in FY13, when it was already in a difficult situation caused by weak macroeconomic conditions. Petrol prices are up by roughly 10% since the beginning of FY13, diesel is being deregulated, interest rates have found their comfort zone at highs and investor sentiment is at an all time low.

The above factors have resulted in passenger car sales declining by 1.80% from April 2012 -January 2013, as compared to the previous year. The situation is so dire that the yearly target of SIAM (Society for Automobile Manufacturers) 0-1% growth for passenger cars seems a distant dream at the moment.

SIAM’s targeted growth, or let’s say stagnation aside, automobile manufacturers and dealers are bound to have more aggressive and optimistic targets, and in some cases, clearly beyond achievable. With the financial year in the last month, there seems to be tremendous pressure to achieve these (or come close enough to not make it look embarrassing).

To boost sales, a number of promotional schemes are being floated in the market. The usual discounts and freebies (for insurance or accessories) don’t really catch the eye as they are usual business. Having looked at some of the recent trends in sales promotion, FY13 can be termed as next level desperate.

For starters, Audi has a relatively tepid scheme where it’s offering the Audi A4 for a price of Rs 24 lakh. The down payment would be of Rs 5 lakh and EMI would be offered at 0% interest over a period of 36 months. No, that’s not next level.

Tata Motors has slashed the prices on its Indica and Indigo models in the range of 3.42% and 7.69%. Moreover, it is offering a buyback scheme called the Club Class Buyback Assurance. If a car is bought right now, Tata Motors guarantees buying it back from the customer after three years at 60% of the purchase price.

Tata Motors has also managed to provide offers on the Nano, a car which has the image and price of not being able to fetch discounts. The Nano is being sold in a way that will make you feel like you are running errands. The offer says, swipe a card and drive out the Nano on the same day. Seriously? One can, either pay the entire amount by card and drive the car out or have the amount divided into equal instalments to be paid over a period of 12 months at 0% interest rates.

For those not relying on plastic, drive your old car into a Volkswagen showroom with a Re 1 coin and take home a Vento. Or how about this, buy a Skoda Rapid now and get a Skoda Fabia free after five years. Imagination has been clearly running in all directions and ideas are being brought up to sell cars. Although these schemes have been running, sales volumes have shown no improvement so far. That apart, even if these companies drive volumes, ever thought about margins?

These short-term sales strategies (rather, tactics) are highly unsustainable and will only hamper the financials of companies in the near-term. They provide absolutely no long-term solution and the industry will continue to suffer till there is an improvement in the structural factors.

On the policy front, automobile manufacturers asked for a revision in excise duties to revive the industry. However, the government ended up increasing taxes on the only segment which was doing well – Utility Vehicles.

All hopes now lie on the upcoming monetary policy. Interest rates have been cut recently and if that happens again, it would start easing the situation out for end-users and help start reviving demand. With this improvement in interest rate trends, a gradual improvement in the performance of the industry is likely soon.