Indian Automobile Industry – Whither Go You?

Over the past couple of weeks, conflicting news bytes from the Indian automobile industry have left investors and market watchers completely flummoxed. The Society of Indian Automobile Manufacturers (SIAM) declared a dismal year and signaled the start of layoffs in the industry that may lead to the loss of between 1.5 and 2 lakh jobs. In the same breath, German automobile manufacturer Mercedes-Benz announced a 47% boost in its Indian sales figures for the year FY 2013-14. Another German luxury car manufacturer, Audi reported an 18% increase in sales (by volumes) in March 2014, in comparison with the same month last year. So are automobile sales in India increasing or shrinking? Do Indians now prefer foreign brands – more specifically high-performance, ultra-luxury SUVs and cars? Whither goes the Indian auto industry?


In January 2007, Prime Minister Manmohan Singh launched the Automotive Mission Plan (AMP) 2006-16. The plan showcased the nation’s vision for the indigenous auto industry’s development into a global player and an exports hub within a decade of its release. It envisaged nearly $40 billion being pumped into the industry as investment and promised employment to about 25 million workers directly and indirectly associated with it. By 2015, the Indian auto industry was to record an output of $145 billion. As we enter FY 2014-15, the plan already seems to have taken a massive beating. In FY 2014, passenger vehicle (PV) sales in the country recorded a 6.5% drop – the first such drop in 13 years.


By March 2014, Tata Motors had let go of over 600 employees who had accepted its early retirement scheme. Hinduja Group owned, Chennai-based Ashok Leyland has announced two early retirement schemes within the past year and is looking at cutting down its staff strength by about a 1000 workers and executives. This is apart from the layoff in 2013-14 Q1 to which 1,200 casual workers lost their jobs.  The company reported a net loss of INR 167 crore in the third quarter of 2013-14. In June 2013, Maruti Suzuki, the largest Indian car manufacturer, shut down five of its manufacturing units in Gurgaon and Manesar for a period of eight days. The company claimed it was an attempt to align its inventory with failing demands.


In stark contrast, Stuttgart-based luxury car manufacturer Mercedes-Benz is buoyant and believes it will sell over 10,000 units in 2014. Audi India also expects a similar sales figure. Mercedes-Benz has plans to double the manufacturing capacity of its Chakan (Maharashtra) plant and forecasts an unprecedented growth in its E-Class, C-Class models. BMW India seems to be the only car maker in this segment that is not bullish in the markets, having reported a 22% decline in sales.


Car Prices in India

What I think noteworthy in this paradox is the price-range of the cars – the Mercedes-Benz GL63 AMG SUV is currently pegged at about INR 1.66 crore; Audi has hiked its prices by an average 3% taking its R8 model price up to INR 1.68 crore. Tata Motors, on the other hand, shelved its plans for the diesel variant of its Nano which would have cost about INR 3 lakh vis-à-vis the current petrol model that costs between INR 1.4 and 2.5 lakh.


What ails the Indian auto industry? Will the foreign luxury cars segment see a steady growth and the slump trend continue to haunt indigenous economy car manufacturers? Will a change in government and relaxed excise policies help revive the ailing industry?  Will the new government revise the AMP and inject technological and financial support to boost the industry? The answers to these questions will be revealed in the months to come. India waits with bated breath!

Related Information:

Union Budget 2014-15 Expectations