The past few years has seen a rapid rise in the Indian Automotive Sector. Economic reforms and deregulation have helped it to become one of the fastest growing industries globally. With an annual production of more than 3.7 million units in 2010, India’s passenger car and commercial vehicle is the seventh largest manufacturing industry in the world.
A forgettable year
It is said that one cannot predict the future by looking into the past. This adage holds true for the automotive sector in India. According to data available with the Society of Indian Automobile Manufacturers (SIAM), domestic passenger car sales stood at 1, 38,521 units in October 2011 compared to the 1, 81,704 units sold in the same month last year (October 2010). Even the festive cheer did nothing to help the cause this season. The year 2011 has been gloomy for the industry as it has shown the steepest decline in sales since 2000.
The carmakers have cited increased fuel prices and bank interest rates as the key reasons for the collapse. Fuel prices have been revised more than 11 times in the past one year and Reserve Bank of India (RBI) has increased lending rates by 13 times since March 2010 to cool inflation. This has made the shoppers think twice before buying a car. Moreover, a car is the second biggest investment for many households, with the first being purchasing a home, and people are not taking car loans as they already have home loans to repay.
Despite the dismal performance this year the Indian automotive companies are not hitting the panic button as many expected the slowdown and have made plans to counter the same.
Many automotive companies converted the adversity into an opportunity by coming up with new launches which have an option of diesel engines. With the hike in the petrol prices, the differential price between petrol and diesel is currently more than 40 percent, which lead to an increase in demand for vehicles with a diesel engine.
Analysts expect 2012 to be a bright year for the industry as statistics show that the Auto Expo 2011 has all its stalls booked which reflects the many customer friendly deals companies have to offer. Companies have realised that trimming down the cost of vehicles and providing vehicles to customers at a relatively low price is the key to increase their sales.
Several large companies have geared up to this new reality and are in the process of investing down south to set up manufacturing units, R&D facilities and design capabilities.
On a brighter note
Considering the challenges that the industry has been facing since the past one year and the way it has countered most of the threats that it faced, one can be sure that the future of auto industry is promising. This is proved by the recent announcement made by SIAM, that the car sales are projected to increase up to 5 million vehicles by 2015 and more than 9 million by 2020. By 2050, India is expected to top the world in car volumes with approximately 611 million vehicles on the nation’s roads.
Ajinkya Firodia is the managing director of Kinetic Engineering Ltd.