AUTO PUNDITZ
  • Team Auto Punditz

Analysis of the Indian Automobile Debacle

Everyone is discussing the downward trend of the Indian Automobile market. While India is in the hotlist of all the top OEM’s of the world; the recent downfall in the sales chart has raised a lot of questions on the lucrativeness of the market. The volatile trend is not a good sign. Analysts believe that the trend is to continue for another 3-4 months without any signs of revival. This has made the investors wary and the manufacturers scared. This amidst the fears have forced the OEM’s to announce heavy discounts in November and I’m sure the same will continue for December.

The most attributed reasons for the downfall are: *Rise in Interest rates *Increase in fuel prices *Inflation *And Labor Agitation in the biggest Automaker

The bad times even got worse with the last point mentioned in the above list. Maruti Suzuki is reeling to supply the vehicles according to demand and the labor issues in past 3 months have hit the production hard and has turned out to be the worst nightmare in MS’s history. This had a direct impact on the company’s sale and was even reflected in its Q2 results – the company saw a fall of almost 59.8% in its profit. MS used to be the mascot of the Robust Indian Auto Industry and its decline in profits raised many eyeballs. Even though with an exhaustive booking list for its new Swift (almost a lakh booking), the signs from MS aren’t too upbeat.

India’s two biggest Automobile manufacturers MS & Hyundai experienced a de-growth of more than 52% and 5% respectively. Although the reasons for the de-growth in MS was explicit; Hyundai’s downfall was worrisome even after the launch of its much awaited Eon. The industry was expecting a boost in Hyundai’s sales chart after Eon’s arrival.

While the growth of VW, Toyota, Ford and M&M was a sigh of relief for the industry. With festivities around these OEM’s performed as they were expected to do. The growth was primarily pushed by the introduction of new products in their stable – Polo & Vento for VW, Etios & Liva for Toyota, Figo for Ford and XUV 500 for M&M. We’re sure with the all new Brio and the re-worked Jazz will do similar wonders for Honda in coming days.

But, the recent increase in petrol prices have again fueled the discussion on how is it going to affect the industry. And to fuel the fire, the increase in Repo rates from the RBI will also hike the already soaring interest rates.

To explain on how these factors are going to affect the common man let us take an example of the following scenario –


From the above table the following points could be inferred –


  1. The product price (Maruti Alto) has rose a decent 2% which is acceptable.

  2. The EMI has increased by a marginal 10%. The loan rates which used to be once lucrative has now made the common man think twice before finalizing his/her purchase decision. And with the volatility of the interest rates; it has pushed many consumers postpone their purchase.

  3. A whopping 70% increase in the price of the Petrol. It is difficult to digest the fact that fuel prices have hiked unprecedentedly over just a short time of two years. As the petrol prices have been de-regulated by the government – we would not be surprised to see the petrol price touch the century mark in a nearby time.

  4. Considering all the above factors, the total cost of ownership has increased by a considerable 22%.

We at Management Punditz do not understand on Why does the government do not think about the Auto Sector and the people associated with it and is just concerned about the Oil Companies??? We’re sure that the losses beared by the economy as a whole is greater than the losses of the Oil majors. We hope government realizes the truth pretty soon.

However to exhibit the sudden upsurge in demand for diesel cars is due to the sustained increase in prices of the diesel and the long term benefit associated along with it. Today the performance and refinement between a petrol and a diesel car is surprisingly similar. Even the maintenance costs of a diesel machine has rationalized over the period of time. This makes Diesel Cars a sensible buy for the consumers. A perfect example to describe this – Out of a lakh bookings for the new Maruti Swift; 80 percent of the customers have opted for a diesel variant.

We hope that the recessionary trend in the Indian Auto Sector is short lived and as with the array of new launches, we see the sure-shot signs of revival.