Auto firms in for sombre festive season

Resort to plant closures in a bid to align production with demand, to avoid further piling up of inventories

Dampened spirits, demand-smothering high interest rates and elevated inflation have led car makers to believe that this year’s festive season would not give any respite from sliding sales.

They say the industry is in for a dull festive season that normally sees 40-45 per cent of the total annual sales. The market sentiment is poorer than during the 2008 slowdown.

P Balendran, vice-president, corporate affairs, General Motors India, says, “Even during the festive season this year, there won’t be a significant improvement. The market sentiment is very weak.” GM India will suspend production at both of its plants for a day this week, as it did last week.

Inventories at several dealerships are at a year’s high, forcing almost all passenger car makers to rationalise production at their plants. Though demand for petrol models has taken a hit since the past many months, diesel models are also facing the heat of the slowdown.

The overall car industry grew by just three per cent in the first two months of the financial year. It saw sales of 331,000 units, compared to 321,000 units in the first two months of 2011-12. For the first time since 2008, car manufacturers have resorted to plant closures in a bid to align production with demand, to avoid further piling up of inventories.

Sandeep Singh, deputy managing director, sales & marketing, Toyota Kirloskar, says: “We echo the same (GM India’s) views for the overall industry, though we do have our plan to spur growth for Toyota vehicles... Our challenge is not so much (against) sales numbers, but the rupee depreciation.”

At present, the entire industry is running on steroids of lucrative incentive programmes like discounts of nearly Rs 1 lakh on certain sedans, free insurance and registration costs, extended maintenance contracts and free supply of fuel.

Lowell Paddock, president and managing director of GM India, says, “Every company needs to look at how they are approaching customers. Discounting, as it is proven in many other markets around the world, ultimately becomes a self-defeating proposition. In these times you have to be prudent in how we spend money on incentives.”

Though most of the new models lined up for launches during the festive season this year are diesel-powered, almost all the models would be from the non-volume generating segment of utility vehicles. GM India’s all-new hatchback and sedan will be the only exceptions.

Kumar Kandaswami, senior director & India manufacturing leader, Deloitte, says: “People will think where would their salary be next year and what finance costs they have to bear before they buy a vehicle. The used car market saw 2.5 million sales last year, which means a lot of people moved from the new car market to the second-hand car market.”

The only model aimed at increasing volume substantially is the new small car from Maruti Suzuki India Ltd (MSIL). It is positioned below the Alto K10 and scheduled for launch before Diwali. However, MSIL does not plan to offer the car with a diesel option.

Shashank Srivastava, chief general manager of MSIL, says: “The festive period will be better, (though) much depends on the business sentiments. I think interest rates may look better, and some reforms may also come in improving the sentiments.”