Six years of liberalisation, only 1.5 million cars sold

Syed Firdaus Ashraf in Bombay

Last month's Auto Expo '98 in New Delhi promised a range of mouthwatering cars for Indian customers -- fancy gizmos, sexy engines, sleek looks, and rock-bottom prices. While it remains to be seen whether the customer will be attracted or not, the fact is that at present, the car industry is in a slump, after three years of a boom.

Figures from the Association of India Automobiles Manufacturers reveal that car sales in the first half of fiscal 1997-98 (April to September 1997) grew by around nine per cent, less than half of 1996-97 when sales growth was a delightful 19 per cent. Ditto for car production: growth rate for the first half of 1997-98 is around six per cent compared to 16 per cent in 1996-97. Few expect the figures to improve dramatically for the entire year (April 1997 to March 1998).

Rajendra Singh Sethi, managing director of Popular Car Bazaar, a major dealer in Bombay, laments, "Compared to last year our business is down by 30 per cent. There are no takers today despite the banks and auto finance companies slashing interest rates from the earlier 24 per cent to 18 per cent. People are simply not coming to the showrooms."

Today, there are four million cars on Indian roads. However, given the fact that there are 18 million affluent households, it means there is a huge market available. Estimates show that today, for every 200 people in India there is only one car, which works out to one car per 40 households.

There is another side to the story. Out of the paltry four million cars on the roads, nearly 1.5 million are more than 10 years old, one million are five to 10 years old, and only 1.5 million are less than five years old.

Which also means, that after six years of liberalisation and the entry of some of the world's best known models and brands, not more than 1.5 million cars were added to the roads all over India!

The car industry is categorised into three markets (approximate prices):

The premium segment, or the high-priced cars which includes Mahindra Ford's Escort, Daewoo's Cielo, Opel's Astra and the Mercedes-Benz. The last is, naturally, the highest price at a whopping Rs 2.25 million, followed by Opel at Rs 816,000, Ford at Rs 732,000, and Cielo at nearly Rs 700,000.

Daewoo slashed the price of the Cielo by Rs 130,000 last month in a desperate bid to push up sales. Also, Honda Motor's newly launched car, the City, is priced at Rs 600,000, making it extremely competitive in the premium segment.

The mid segment, filled with people who are fed up of their small cars and want to catch up with at least the upper middle-class Joneses. The cars in this section are Hindustan Motor's Contessa Classic, Fiat's Uno, Maruti's Zen and Esteem. Prices range from the Contessa at Rs 459,000, Uno at Rs 362,000, to the Maruti Zen and Esteem at Rs 395,000 and 582,000 respectively.

The lower segment, consisting of some of India's cheapest cars, including the Maruti 800, Maruti Omni (van), and Premier Padmini. The ubiquitous Maruti 800, India's largest selling car, costs Rs 237,000, the Omni is even cheaper at Rs 216,000 and the Padmini is Rs 228,000.

Analysing the three segments, Dipak Gupta, chief executive officer of Kotak Mahindra Primus Limited, car dealers and financiers, says, "The premium segment has stagnated, and is actually seeing negative growth. The mid segment is growing, though at a very slow rate. The lower segment is the only segment thirsting for more cars, especially for the popular Maruti 800. But here the constraint is supply; the industry simply cannot keep pace with demand, thus keeping growth low."

In fact, the pent-up demand in the lower segment might also explain why at the Auto Expo '98, almost every major company announced plans to manufacture (or import) small cars right from the Tatas to Daewoo to Hyundai.

Concurring with Gupta, Jardine Fleming auto analyst K N Srinivasan says, "The Indian market is still not saturated for the small car. And that is why, in the short run, only those cars priced between Rs 200,000 to Rs 300,000 will do well. No wonder Tata and Daewoo are eyeing this market, hitherto dominated by Maruti."

However, Munaf Meghani, assistant manager, Daewoo Motors India Limited, dismisses suggestions that the premium market is dead. "It is wrong to say that premium cars did not do well," he says, "One must remember that the economy overall did not grow and therefore that segment's growth was not sustained. Moreover, the money market is so tight that people are not ready to spend for premium cars, and therefore prefer small cars."

Besides the tight liquidity situation, another constraining factor is the pathetic infrastructure and congestion on the roads. Many people prefer to use two-wheelers, whose sales have continued to rise, rather than invest in cars.

"We have found that Indian consumers certainly feel the need for a car but some people do not go in for it, especially in the major cities, because of the road and traffic conditions," says Gupta, "For example, it is much easier in Bombay to manoeuvre your way on a scooter than be stuck in a traffic jam in your car. Consumers prefer travelling by a two wheeler; a car is of prestige value, not a need."

Srinavasan agrees. "Many people find two-wheelers economical and therefore its demand is high," he adds, "Many families often possess two to three two-wheelers rather than own a car."

Despite the depressing scenario, Gupta remains optimistic about a turnaround. The economy is bound to improve, purchasing power will go up, and supply will increase. This present slump certainly will not go on forever," he declares.

EARLIER REPORTS:
The Auto Show
The Maruti controversy