Thursday, 3 January 2013

Indian Automobile Industry - Year 2012 in Flashback and expectations in 2013

"Year 2012 has been the most challenging year for almost all Automobile majors in India and year 2013 is going to be even more challenging"

You would see this phrase highlighted in almost every newpaper and research report for Indian Automobile sector. However, no where it has been specified the meaning this phrase wants to convey and rather leave it Unexplained.

We will come try to solve this simple puzzle at the end of this article however at this point of time, let us first discuss upon the happenings in 2012 & expectations in 2013. Nevertheless, at this stage, we would just say that the phrase DOES NOT mean that we are entering a slowdown, it is just that the consumers are getting intelligent and getting more choicier and cautious than ever before, the automobile majors are going to face tough times ahead and the "fittest of the survival" theory will prevail - thanks to the government's unclear policies (which are yet to started) or unfinished policies (the decisions on which have been pending till date).

Highlights of Year 2012

  • The year where we saw the highest number of Top Management changes - showing signs of threats from Competition and thereby Poaching.
  • The year where we saw the highest number of discounts - on all models across, still not able to generate huge growth, as expected - shows how difficult it would be to attract customers, who are getting more intelligent and aware everyday.
  • The year where we saw some of greatest launches - new segment creators (Quanto, Duster & Ertiga) and still generating huge volumes - shows people are now ready for the change.
  • The year where we saw the changing mix of Diesel Vs Petrol - thereby persuading Auto manufacturers in India to start manufacturing Diesel engines, huge investment and thereby boost to Indian economy.
  • The year where we saw one of the Gruesome Labor troubles in Manufacturing history - thereby questioning Government policies and leading to development of New Auto hub in India - Gujarat.
Expectations during Year 2013
  • New "Value for Money" segment to be the fastest growing segment - Compact sedans (Dzire, Brio Amaze etc) & Compact SUV's (Quanto, EcoSport, Duster etc)
  • Expect Lifecycle of vehicles to decrease to ~3 years from current >5 years - see more number of facelifts from each manufacturer - reducing the resale value of cars but increasing the volumes of Used cars market.
  • Expect Automakers to have Long term plans, in order to survive - this includes making India as export hub which would lead to increased production at plants and thereby reducing overall costs of vehicles to be more competitive in market.
  • The Year 2013 will not generate huge numbers / growth, however this should be the year to look onto the sides at your competitors position and then plan accordingly your race. Introspection should be the need of the hour year 2013
  • Indian Automobile Industry is getting ready for a big growth and for a recognisable stand in the Global Automobile Industry. Expect India to be the fastest growing Automobile market in the world in a couple of years ahead - banking upon fastest growing middle income population, confidence and investment of almost all Global Auto majors and anticipated Government's policy reforms.
Manufacturer wise Growth

The OEM wise growth figures if we see is not at all a difficult nut to crack. The ONLY players which showed a de-growth are - Fiat, HM-Mitsubishi, Ford, VW and GM. For Fiat and HM-Mitsubishi, there were the obvious reasons for the de-growth however for GM - the catalyst for de-growth was reduction in sales of Spark by almost 70%. Ford showed a mild de-growth owing to low volumes of its till now bread & butter model Figo in India (Expect things to change in 2013 when EcoSport launches). VW shows a de-gwoth on account of low sales of Vento - with reason being highest priced with regular features. and lot of other attractive options available in this segment. Rest all other Manufacturer's showed a growth over previous year. The above said OEM's account for 10% of market share - meaning 90% of market showed a growth.

Now, let us discuss the left unexplained phase in the Indian Automobile Industry. They (almost every Auto maker) say - "the environment is difficult" - which means the contributor to this could be either of the following -
  • At the Manufacturer's end - Difficulty faced at producer's end and thus no production happening.
  • At the Consumer's end - Difficulty faced at the consumer's end & thus no purchase happening.
  • At the Policy maker's level - which act as mediator between the two & thus making willing contact between Manufacturer and Consumer difficult.
As far as the reports released by the Auto makers every month goes, the Production has gone up compared to year 2011, the demand (total sales by Consumer's) has gone up. Though, of course as expected the growth has not been much but still much better than European countries, which are registering a de-growth. Just to go by numbers, as far as Passenger vehicles are concerned (Cars + Utility Vehicles + Vans) - we have seen sales growth of almost 15% in Q1 2012, 9% in Q2 2012 and 4.5% in Q3 2012 and 17% in Q4 2012 (Q4 includes Oct + Nov since few customers like Maruti etc have still not disclosed Dec 2012 numbers), leading to an overall 11% sales growth during the year.

However, we could see that consumer's are deferring their purchases because of non clarity of price of fuel by Government and similarly, manufacturer's have kept their investment plans (Diesel engine manufacturing etc) on hold since there has been no clarity by government on fuel & other policies. Thereby, when the production in entire country has shot up, even the sales has shot up during the year 2012, what is left is clearly understood.


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