India’s Motown is feeling a bit lost this festival season. Multiple long-term and short-term factors are giving it a bumpy ride, including policy adrift, the electric vehicle (EV) versus hybrid battle, muted consumer sentiments, Kerala flood, rising interest rates and a skewed market, thanks to the near-duopoly of Maruti-Hyundai.
Amid muted sentiments, automakers are rolling out new models, freebies and discounts in the hope to woo buyers and push up sales. Globally, a completely different set of factors is setting the mood. While Detroit giants like Ford are figuring out a new strategy to survive and grow in a Tesla-led EV world, US-China tariff war in the Trump era is creating additional barriers for automakers. Expect many of those global rumblings to echo on Indian roads sometime soon, starting with Ford India.
Ahead of the festival season, ET Magazine takes a look at some of the key themes that are playing out in Motown – in India and overseas.
Launches, Freebies & Discounts
The festive season in 2018 hasn’t started on a good note. Kerala floods washed out Onam festivities. Reports of floods from other parts of the country have also dampened the cheer.
Nevertheless, India’s Motown is gearing up for the two months of festive sales (that include Navratra, Diwali and Ganesh Chaturthi), which contribute close to 30 per cent of the annual sales. The four months of August-November is expected to see 26 new launches, facelifts and model refresh.
Last year, the figure was 17. Some of the big launches this time would be the new-generation models of Hyundai Santro, Maruti Ertiga, Honda CRV and Porsche Cayenne. Mahindra recently released the Marazzo. Wagon R would get a facelift, Ciaz would get an upgrade, and Ford Aspire and Mercedes C-Class would see special editions. Reportedly, Tata Motors is rolling out some special editions and is also offering its customers savings of up to Rs 50,000.
Hyundai is offering its new Grand i10 and new Xcent at a special price with additional benefits of Rs 25,000-90,000 in the form of cash discounts, exchange bonus, etc. Nissan’s Datsun has launched a limited edition redi-GO at a special price. Nissan’s Terrano comes with benefits of Rs 1 lakh. Toyota Corolla is offering discounts of up to Rs 1 lakh.
In July, passenger vehicle sales dipped 2.7 per cent and in August by 2.46 per cent. Market leaders Maruti and Hyundai also saw a dip, which is unusual. Dealers say customer enquiries and footfalls have been lower this season and inventory build-up hovers around 40-60 days now, against the usual 21 days.
Beyond these reasons, two structural factors are hurting dealers. One, with Maruti and Hyundai lording over close to 70 per cent of the market share, dealerships are becoming unviable for other carmakers. The other problem is easier to fix.
In India, market share is calculated on the basis of factory dispatches rather than dealership sales. Consequently, original equipment makers follow a push, rather than pull, strategy. This increases dealer inventory and working capital needs. It is time Motown fixes this anomaly.
Split Wide Open
MOVE-Global Mobility Summit — which was organised early this month by the NITI Aayog, inaugurated by Prime Minister Narendra Modi and attended by auto industry veterans from India and overseas — created a lot of buzz. Amid talks of electrification, renewable energy thrust and jobs, there was a simmering issue that didn’t make headlines but was felt by the attendees.
Motown is a divided world these days due to some key policy issues. A battle is on between the proponents of EVs (led by companies like M&M, Tata Motors) versus those batting for hybrid or alternative fuel (led by hybridfocused Japanese car makers like Toyota who prefer a technology-agnostic policy).
A seasoned auto industry executive says he hasn’t seen a house so divided in his lifetime. Some likened it to the factionalist GSM-CDMA war that played out in the telecom industry in the early 2000s between cell phone operators like Airtel and wireless in local loop players like Reliance.
The rift was out in the open again when the government recently cleared a policy allowing imports of up to 2,500 completely built units without any roadworthiness certificate in India. The move was cheered by MNCs like Toyota and Nissan but opposed by industry body Society of Indian Automobile Manufacturers.
Entry & Exits
It is hard to do business in India. But it is harder to ignore it. So entry and exits in India’s Motown is an evergreen guessing game. After GM who? Last May, when General Motors exited India, ET Magazine looked under the hood to understand the road ahead. Then, VW, Ford Motors, FCA, Skoda, Nissan were some of the top contenders on the exit list.
Today, VW’s 2.0 India project has overhauled operations to let Skoda take the lead. Nissan India is hurting badly. The buzz is that M&M is buying a 51 per cent stake in Ford India. With losses of Rs 4,662 crore in FY17, Ford India has had a bumpy ride. Headwinds at the headquarters have not helped much. Amid a stock slide and Moody’s downgrade from Baa2 to Baa3, its CEO Jim Hackett is rolling out a recast plan.
In the meantime, more automakers are readying their India plans, including Korean Kia Motors (part of Hyundai Group), Chinese MG Motors (part of SAIC) and the French PSA group. Kia will debut around April 2019. MG Motors, that acquired GM’s Halol plant, will launch vehicles in 2019. PSA Group is partnering CK Birla’s HMFCL.
Costly Cover
For those stretching their finances to buy new cars this festival, prepare for a rise in the initial outgo.
From September, buyers of new vehicles will have to shell out more money, as an insurance policy released by the government has mandated that car and two-wheeler buyers must also purchase a three-year and five-year insurance cover, respectively , instead of an annual cover like now.
Earlier, insurance renewal was yearly and often owners of old, depreciated vehicles either skipped it or took a third party coverage that was inadequate. The Insurance Regulatory and Development Authority of India directive to this effect came after a recent Supreme Court order aimed at improving insurance coverage in the country.
US-China Trade War
The global automobile industry is feeling the heat of the high-pitched US-China tariff battle. US carmakers are the worst affected, taking hits from both sides. A new report by the Centre of Automotive Research warns that the automobile industry will be seriously impacted by the ongoing battle.
It estimates that sales in the US could dive by up to 2 million units, leading to job losses of over 7 lakh in the US, and a $62 billion hit to its gross domestic product. The cost of spares and components, sourced mostly from China, will also rise.
Europe isn’t getting away unscathed. Its factories saw the slowest growth in manufacturing in two years, even as export orders failed to rise for the first time since 2013. China is not looking good either, as muted consumer sentiments have led to car sales dropping for a third month in August.
TaMo’s Comeback
JLR’s flagging global sales is hurting Tata Motors (TaMo) but the company has reasons to cheer in India. After struggling to get a grip on India amid a lot of bad news, TaMo can now look at the festive season with new fervour. Sales have been promising and its models seem to be getting traction. TaMo is closing its gap with M&M, India’s third largest car company by market share.
In April-August, according to SIAM, TaMo was just 1,313 units shy of M&M in the passenger vehicle segment. TaMo , riding high on models such as compact SUV Nexon and hatchback Tiago, sold 98,702 units in the period to occupy the fourth slot.
Top-Deck Reshuffle
It may just be a coincidence. This year has seen some unexpected top-deck reshuffles — Jnaneswar Sen, sales & marketing head of Honda Cars India, quit in March. In July, Nissan Group’s MD Jerome Saigot resigned, the third senior-level exit in a little over a year. Honda Cars AVP Rakesh Sidana left in June. In August, Hyundai’s sales & marketing director Rakesh Srivastava resigned.
While not all executive movements might not be unusual, poor business performance was the reason in at least some cases. India has been a tough market for auto MNCs. The country has about 16 carmakers; eight of them have a market share of under 2 per cent and the top two have close to 70 per cent.
Meanwhile, market leader Maruti Suzuki rolled out a “routine” management reshuffle in summer, which some industry sources say is not so routine. Oversight has been made tighter, with Japanese executives shadowing their Indian counterparts at even the mid-level and in many new functions like rural marketing. Two hypothesis were overheard: One, Suzuki is preparing for a tighter embrace with Toyota Motors. Two, with Suzuki exiting most markets, including China, the lucrative Indian market is getting a sharper focus.
Bet on Made in India
Starting with Hyundai in the 1990s, car exports from India have been an important business weapon for auto majors. Companies such as Ford, Nissan, VW and GM, among others, looked at India as an export hub, and hence set up large capacities.
Exports helped them boost plant capacity utilisation here and gain economies of scale in a price-sensitive market like India. Unlike Hyundai, however, not all of them have been successful in their export strategy.
In April-August, Hyundai emerged as India’s top car exporter at 71,645 units, followed by Ford India (65,176), Maruti Suzuki (46,198), GM (34,981) and VW (30,238).
Amid the US-China tariff war and India moving to Euro VI emission norms by 2020, optimists are hoping car exports from India will get a fresh boost soon. Already, carmakers like Mercedes-Benz and BMW are looking at ways to export to markets such as the US.
Germans vs Tesla
As Elon Musk stumbles in his game, the Germans are readying their arsenal to lead the EV wave. In the US, Tesla’s stock was hammered as Musk made headlines for all the wrong reasons — from grappling with “production hell”, “delivery logistics hell” to drinking whisky and smoking cannabis during a radio talk show.
The rise of Tesla with its premium EV offering affected Germans the most. Mercedes-maker Daimler, BMW and VW’s Audi together control 80 per cent of the premium car market globally. Their glamour has paled in the face of the trailblazing Musk and Tesla’s battery-powered, zeroemission EVs.
Early this month, the three German carmakers said their first all-electric SUVs would be unveiled in two years — Audi’s E-Tron, BMW’s iNext, Mercedes EQC and Porsche’s electric coupe Mission E. The trio will invest 40 billion euros in the next three years in battery powered vehicles.
