Indian Auto Makers Seek Tax Relief as Sales Fizzle

MUMBAI – Light-vehicle sales in India fell 7.1% in first-half 2013 compared with a year earlier, to 1.6 million units. Car deliveries slumped 15.2% to 957,009 and light trucks, which showed double-digit growth earlier, have stalled the past three months.

In June alone, car sales declined 9% to 141,082 units and light trucks almost held steady to 95,245, leaving LV deliveries down 5.5% to 236,327.

The market is contracting despite incentives such as cash discounts and cost-free credit periods of a year or more, and promotions of special editions.

The Society of Indian Automobile Manufacturers describes the situation as “alarming.” Says Maruti Suzuki Chairman R C Bhargava: “This is the worst period I have seen for the industry. Unless the economy grows, we cannot grow.”

There are several reasons for the declining sales besides the weakening economy: Steady and continuing increases in both excise duties and interest rates; falling productivity and capacity utilization; unstable and intermittently rising gasoline prices; stagnant investment; and, above all, the depreciating rupee.

Gasoline-powered LV sales started slipping last year, but the declines went unnoticed amid growing demand for diesels. However, regulated diesel prices are rising faster than gasoline, and the difference between diesel and gasoline has fallen 50%, from Rs26 to Rs13 per liter ($1.63 to $0.79 per gallon ).

This has created a mismatch in production and demand, as buyers switch from diesel back to gasoline. Auto makers increased diesel-engine capacity during the past two years, only to see diesel sales fall 10% to a 45% share of the market over the past 12 months.

With sales in the slow lane, SIAM is planning to ask the government for a double stimulus to boost demand for new vehicles.

The auto makers group wants excise duty rates rolled back to 2008 levels: 8% for small cars, down from 12%; and 20% for large cars and SUVs, down from the range of 24% to 30%. SIAM’s other demand is that government introduce compulsory scrapping of passenger vehicles in use for 15 years or longer.

With capacity utilization at 50%-60%, compared with 85%-95% 18 months ago, six major auto makers have not waited for the government to act.

Maruti Suzuki, Hyundai India, Mahindra & Mahindra, Tata, Toyota Kirloskar and General Motors India shut down their plants between two and seven days in June. Three of them have terminated some temporary/contract workers with a view to lower costs, cut inventories and remain competitive.

The three largest auto makers were affected the most, WardsAuto data shows. Maruti Suzuki LV sales in June were down 8.2% to 77,002 compared with year-ago; Tata lost 21.3% to 37,582; and Hyundai India sales moved just a fraction higher to 30,610.

Mahindra so far has avoided the worst of the recession on the strength of its SUVs, but June sales nevertheless slid 9.4% from prior-year to 31,561. Says CEO Pravin Shah of the automotive division: “Last year, utilities were growing at 50%, but the growth has come down to 5% this year, despite several new models and wide-ranging incentives.”

Other auto makers have fared better with new products. The Amaze compact sedan has helped Honda Siel Cars sales surge 348.6% to 9,297, according to WardsAuto data. But Toyota deliveries tumbled 33.5% to 11,010, with no new model available to replace the 2-year-old Innova and 3-year-old Etios.

Similarly, while Ford’s EcoSport compact cross/utility vehicle helped sales grow 14.2% to 7,145, GM India fell 11.8% to 6,575 with no new model to offer. Volkswagen India and its SkodaAuto India subsidiary retreated a combined 32.6% to 6,935.

Some new and upcoming products are targeted mainly against established models such as the Maruti Swift, Alto and Ertiga. Honda’s Amaze is taking on the Swift Dzire compact sedan, while Ford positions the EcoSport as an Ertiga-fighter.

Nissan-Renault is developing an ultra-low-cost car to compete against the Alto. Hyundai, without a new offering for more than a year, is planning a new premium hatchback.

The super-luxury segment also faces market resistance. Audi, BMW and Mercedes-Benz saw combined June sales in India drop 7.1% to 1,990 units. Jaguar Land Rover deliveries fell 15.3% to just 150.

The high-end rivals are planning compact super-luxuries at highly competitive prices in the Rs2.5 million to Rs3 million ($42,000 to $50,000) bracket. Mercedes fields its A-Class and B-Class against Audi and BMW. Audi is preparing to assemble or manufacture A3 and Q3 models at Volkswagen’s Chakan plant, and BMW’s X1 and 3-Series already are in this price range.

WardsAutodoes not record export sales and production, but SIAM reports a 20.4% decline in June to 43,510 units. Maruti Suzuki shipments backslid 74.5% from like-2012, followed by Mahindra (42.3%) and SkodaAuto (29.5%).

Despite the industrywide malaise, all available space has been booked for the 12^th Auto Expo, Asia’s largest motoring event, to be held in February at Greater Noida in Uttar Pradesh. The show has been moved from a smaller facility in New Delhi, which hosted more than 2 million visitors last year.

More than 40 auto makers including first-timers, such as Chrysler with its Jeep models, Great Wall with its SUVs, Isuzu with its trucks and South Korea’s Hyosung with its motorbikes, will  participate.

Spread over 505,900 sq.-ft. (47,000 sq.-m) of floor space, the show will feature new models of vehicles and engines, concept vehicles and future technologies. More than two dozen fresh product launches are planned.