"There is no clear answer (for the slowdown)... The purchasing power for cars in India is still extremely limited" Jagdish Khattar MD/Maruti Udyog

If Maruti Udyog, which accounts for 50 per cent of all automobiles sold in India, is the country's #1 carmaker, its high-profile, outspoken Managing Director Jagdish Khattar is pretty much the barometer of the industry's mood and well-being. Alas, the usually upbeat Khattar is sounding a bit downcast these days. The reason is-what else-fewer people are buying cars, unlike in 2004-05, a year in which passenger vehicle sales shot up close to 18 per cent. In the first five months of the current year, on the other hand, car sales have inched up just 5 per cent over the previous year's corresponding period. "There is no clear answer (for the slowdown)," shrugs Khattar. Prod a bit more, and the Maruti md begins to voice his concerns. "The purchasing power for cars in India is still extremely limited," he laments. If Khattar is downbeat, B.V.R. Subbu, President, Hyundai Motor India, is perplexed. "Consumer confidence is sky-high in India right now, people are buying in the markets, they're buying electronics, they're buying property, they're just not buying too many cars."

Doubtless, the entire Indian automobile industry-cars in the main-is in the grip of a sudden slowdown, coming as it is after two years of sound double-digit growth (26 per cent in 2003-04). In that light, the gloomy reactions of Messrs Khattar and Subbu are expected. But then as Kalpesh Parekh, automotive analyst at brokerage house ask Raymond James, reminds us: "I think people have forgotten that this is a cyclical industry. In the last two years the industry rode the boom cycle and now we are seemingly in a bust. Of course, I think there are a variety of factors that have contributed to the slowdown including vat and the introduction of Euro-III norms, which have both increased prices; that has taken a toll on new car sales. But I guess the industry will recover from this slump." That belief that the slump will likely be temporary and the fact that the stock market doesn't believe in any cyclical thingamajig is evident from the current levels at which the stocks of automakers are trading, at their 52-week highs or close to them as this magazine goes to press (September 4).

The word "slump" of course was in nobody's lexicon in 2004-05. After all, the Indian auto industry had finally arrived. A buoyant economy coupled with low interest rates ensured boom times for car makers. The occasional fire-sale tactic-Hyundai Motor's 'Diwali Dhamaka' sale, for example, attracted an estimated 30,000 orders in the space of two weeks (not all orders were converted into final sales)-added fuel to a sales explosion that was already under way. And it wasn't just cars; commercial vehicles (CVs), for long content with single-digit growth, showed a whopping 22 per cent spike in 2004-05, buoyed no doubt by a thriving economy and tentative steps towards roads and highway creation. Two-wheelers too continued its rapid march towards becoming a 10 million a units a year sector by 2010, growing 15.75 per cent to 6.2 million units last year (motorcycle sales grew by 19 per cent, continuing its decade-long run of growing by over 15 per cent a year).

Two Wheels, Two Horses

It's been largely a two-horse race in the two-wheeler industry, and it will remain that way for some time, with the second-placed pony growing the fastest, but the #1 stallion still leading the race by far. The Japanese pretenders on the track-Suzuki, which is launching later in the year, Yamaha with a slick new ad campaign, and Honda Motorcycle & Scooters-are doubtless in the race, but as far as volumes go they're still at least a lap behind. The big story thus far this year is Bajaj Auto (CEO Rajiv Bajaj seen in picture above). While the overall market has grown some 17.7 per cent in the first five months of 2005-06, Bajaj has surged by 42 per cent. Yet, the Pune-based manufacturer still has only 30 per cent of the market, way behind Hero Honda's dominant 51 per cent. Hero Honda on its part has grown 13.6 per cent in April-August 2005. Clearly, Rajiv Bajaj's investments in the company through in-house R&D, improved marketing and edgy advertisements are paying solid dividends. Still, S. Sridhar, General Manager, Marketing, Bajaj Auto, thinks industry growth this year may not be as good as in 2004-05. "The motorcycle market might grow only 15 per cent or even less this year as the floods in Western India will hit sales in the coming months. The good part, though, which Sridhar is quick to add is: "Bajaj Auto will continue to grow at double the pace of the market."

But now that looks like a distant memory for automakers. While it might still be too early to write off 2005-06, the preliminary numbers do come as a shock. What's more, if car sales did manage to show a 4.7 per cent growth in the first four months, it was thanks primarily to Hyundai's low base in the previous year's first half, when it was hit by major production problems. The spike in Maruti sales in the immediate wake of the Swift has also got to be factored into the first four-five months' growth figures. The CV segment too, for some reason, has slipped into the slow lane, with sales growth of just 1.9 per cent in the April-July period (although LCV sales were up sharply). The two-wheeler segment continues to ride in double-digit terrain, though the growth rate is lower than in the previous year, even as the scooter and scooterette segment took a tumble, declining by over 10 per cent.

In such a scenario, almost inevitably the leader gets mauled the worst and, in Maruti's case, its mainstays have been hit the hardest. "What is worrying me is the negative sales growth in our base Maruti 800 and the Alto ranges. I don't know whether this is happening because the market is getting saturated or because we got so taken up by the Swift that we forgot our two highest-selling models," says Khattar. Sales of the 22-year-old Maruti 800 have been slowing since 2003-4, but the slide in the first four months, of nearly 40 per cent, is a major concern for Khattar. For the first time in almost two decades, the Maruti 800 might just end the year with sales under 100,000 units (in the April-July period Maruti sold 25,707 800s). Hurt the worst is CV and car giant Tata Motors. Sales of passenger cars are down 3.3 per cent in the first five months, and CV growth too is slow at barely 2 per cent (that too on the back of increased light CV sales). A company spokesperson said that the company was adversely affected by the regulatory confusion over pollution control norms for commercial vehicles, which left Tata Motors short of certain critical components, and the rains in Gujarat and Maharashtra impacted passenger vehicle sales in these two states.

For the leaders, this may be time for introspection, but it's not as if the entire industry is caught in the gloom. Honda SIEL, for instance, has been one of the more successful auto-makers in the first four months of 2005-06, registering growth of over 30 per cent. "I think we have a value product in the City... I think consumers are evaluating the vehicle they buy from a long-term ownership perspective, which is resulting in some manufacturers losing out because their cars are seen to be worse for the wear," explains Rajive Saharia, Deputy General Manager, Honda SIEL Cars.

Saharia adds that the current downturn is more a matter of expectation than any fundamental shift in the auto sector. V.G. Ramakrishnan, auto industry analyst at consultant firm Frost & Sullivan, feels the industry has only hit a minor roadblock. "Every once in a while there will be a hiccup," he points out. That hiccup won't ease up in the near term. "There will be the shradhs that will start from mid-September, and that will lead to a pretty bad slowdown in sales," grimaces Khattar. The inauspicious period on the Hindu calendar usually sees a 30 per cent drop in sales for all manufacturers. "The shradhs are an awful time for a marketer," adds Subbu. At the time of going to press, expectations of an excise duty cut on small cars were building hope amongst auto makers. If that doesn't happen, it's going to be a rough drive for the industry till the festive season-or who knows, even beyond it.