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    How the top eight carmakers fared in the past two years of agonizing auto sector slowdown

    Synopsis

    Three months of an uptick in sales are adequate to put the two-year auto slowdown blues behind us. And in every downturn hangs a tale.

    ET Bureau
    After two years of an agonizing slowdown, India’s Rs 4,10,000-crore auto industry is on the mend. A turnaround in investor and consumer sentiment since the new government took charge in May has rubbed off on the industry, which has found its way back on the growth path. Between April and July, passenger vehicle sales have grown by 2.5% over the previous year’s corresponding figure. In the first four months of 2013, in comparison, growth had dipped by 7.5% over a year ago.

    Two things stand out about the recovery: one, that it has come ahead of the October-December festive season quarter, which typically accounts for 30% of annual sales, so there’s a good chance that this upturn can gain further momentum. The second distinctive factor is more cautionary in nature; for now the recovery is limited and not across all carmakers and segments, points out Deepesh Rathore, director, Emerging Markets Automotive Advisors, an auto consultancy firm. While some manufacturers (Maruti, Hyundai, Honda, Nissan, Toyota) are logging growth, others (Tata Motors, Volkswagen, General Motors, Mahindra and Ford) are still seeing a declining trend.

    A segment-wise analysis reveals that utility vehicles are growing well (18.75% in July) with the Ertiga, the EcoSport and now the Mobilio catalyzing growth. The price-sensitive mini segment (Alto, Eon) is showing negative growth. June was an exception, driven by massive discounts. After three months of growth, one can safely say that the sector has bottomed out. So what did the two-year slowdown teach us? Here are four trends that emerged: one, the leader (Maruti) and No. 2 (Hyundai) bucked the downturn and increased share. “It is clear that in difficult times customers preferred the tried and trusted brands with an aspirational quotient,” says Rakesh Srivastava, senior vice-president (sales and marketing), Hyundai Motors India Ltd. Also, companies that created a buzz with new launches gained. Example: Honda, which offered the Amaze during the throes of the slowdown.


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    Two, the past couple of years separated the companies that believed in India (think Honda, Ford, Nissan) and put their resources where their mouth is from those that didn’t — well, at least not as passionately. Companies which launched cars specifically for India gained. Example: Renault Duster. “Think local, act local — many auto companies realized during the slowdown that this is the only way to succeed in the Indian market, says V Ramakrishnan, MD, Frost & Sullivan India.

    Three, different companies used different strategies to attain different goals. So while a Toyota focused on making itself more efficient by cutting costs with robust processes and making dealers more profitable, a Honda went on an overdrive launching products to gain market share.

    Four, in a period marked by labour unrest at many major manufacturers, the industry also saw significant churn in the top management — some planned and many unplanned. The three most affected companies were Volkswagen, Tata Motors and GM India; and to a lesser extent Hyundai. And, yes, Arvind Saxena may have been the biggest jobhopper during the rough times — moving from Hyundai to VW to now head GM, in quick succession. Here’s a quick analysis of how the top eight carmakers fared in the past two years:

    1. Maruti Suzuki: IT’S GOOD TO BE KING

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    Maruti was always the leader on Indian roads. The slowdown only helped it consolidate its gains, improving market share from 40% in June 2012 to 46% in June 2014. It didn’t need too many big launches to move ahead — just the Celerio and the new Alto 800. That helped Maruti to expand its portfolio of small cars to eight models in a country where this segment still accounts for 70% of all car sales. Not to forget that Maruti has the largest dealer network (1,358 outlets) with the best reach in the rural market where customer demand was relatively stable, says Mayank Pareek, COO (marketing and sales), Maruti Suzuki. The worries? One, a lot of sales in the recent months came on the back of discounts that may not be sustainable. Two, Maruti will be under attack at the premium end (think Ertiga and Dzire) from more aspirational models like Honda’s Amaze and Mobilio.

    2. Hyundai: Maintaining the Xing


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    We have never seen something like this before, says Rakesh Srivastava, referring to the slowdown. Yet, he feels good that the company has succeeded in emerging stronger. Hyundai remains the second largest carmaker in the country, although Maruti has widened the gap between No. 1 and No. 2. “It was the most challenging and rewarding period,” says Srivastava. He adds the company achieved its business plan, with the plant operating at 98.5% of capacity with no shutdowns and three shifts. As a result, Hyundai’s car market share has risen from under 20% in 2012 summer to 22.2% now. This growth has come on the back of new model launches like the Grand i10 and the Xcent. It also commissioned its $600-million diesel engine plant in India. But you have to wonder: why doesn’t Hyundai have a product to take on the Ertiga and the Mobilio?

     
    3. Honda: The tough get going

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    It was easily the biggest gainer during the slowdown. As Jnaneshwar Sen, senior V-P (marketing and sales), explains, the tough times began much earlier for the Japanese carmaker. First came the Fukushima nuclear disaster in early 2011 followed by floods in Thailand. Also, the period between 2011 and 2012 was when diesel engines became a rage in India, and Honda stood exposed. The launch of the Amaze, a sub-4 meter sedan with a diesel variant in April 2013, proved the turning point. At its peak, it enjoyed a six-month waiting period and recently reported cumulative sales of 1 lakh units. At a time when the industry was announcing plant shutdowns and layoffs, and offering hefty discounts, Honda was struggling to meet demand, adding a third shift to raise output, and increasing staff count. The uptick in the industry is doing wonders for the just-launched MPV Mobilio, which has notched up over 10,000 bookings in 15 days.

    4. Mahindra & Mahindra: Long pipeline but running short

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    M&M’s market share has slipped from 10.74% in June 2012 to 8.5%. And the decline continues. July sales dipped by 5.3% even as the utility vehicle segment, its mainstay, showed robust growth of 18.5% to touch 44,945 units. Between April and July, sales dipped by 10%. So what’s going wrong with India’s home-grown UV specialist? Its foray into sedans and compacts with Verito and Vibe is not working. Its UV territory is under attack from the likes of Ertiga, Mobilio, EcoSport, Duster and Terrano. “It missed the opportunity in the crossover and compact SUV segment. It did not get the Quanto right,” says Ramkrishnan of Frost & Sullivan. With no big launches in the past two-three years, M&M has been busy restructuring internally and building a product pipeline with Ssangyong. Next year it will launch two compact UVs — one to take on Duster and EcoSport and the other to counter Ertiga and Mobilio. It is also working on a compact crossover. The company says it has a robust pipeline until 2019.

    5. Tata Motors: Can it retain its Zest?

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    The slowdown has been the toughest for the home-grown Tata Motors’s passenger vehicle business. Its market share has more than halved from 10.8% two years ago to 5% in June 2014. July sales have been worse with sales dipping by 15% to 9,167 units. What is worrying is except for some models like the Sumo, the Aria, the Safari and the Grande, sales have dipped across all other categories, from the Nano (-57%), the Indica, the Indigo (-9.4%) to the Manza (-34%). The company, which has posted losses in four of the last eight quarters, has seen big management churn. It has high hopes on the Zest, a compact sedan that launches next week, its first new offering in four years. The Bolt hatchback will debut later this year. It plans to launch two models every year until 2020. Will this work? “Tata has a big problem, of poor brand perception,” says Rathore. That calls for much more than zest.

     
    6. Ford: One horse-wonder

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    For Ford Motors, the slowdown was difficult but not devastating. Between June 2012 and 2014, it has marginally improved its market share, thanks largely to one big winner, the EcoSport which debuted last year. Demand shot through the roof, forcing Ford to stop taking bookings. But the one-car wonder company must worry on multiple counts. Its July sales have dipped by 3.5% to 7,592. Other than the EcoSport, there is poor demand for most of its models. Its compact Figo’s declined by 43%. Its Fiesta and Classic have few takers and have very low volumes, together selling just 642 units in July. Ford has three launches lined up for the next two years: a sub-4 metre sedan, and the next-gen versions of the Figo hatchback and the Endeavour SUV.

    7. Toyota: Time to push the pedal to the metal


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    Like the industry, Toyota Kirloskar Motor too has bounced back. July sales were up marginally by 3.5%, just under the 12,000 mark. But Toyota clearly has a problem in India, with market share dipping from 7.03% in June 2012 to 5.49% two years later. Its foray into the mass segment with the Etios and the Liva has not delivered expected results. And there doesn’t seem to be much in the pipeline. With an eye on profitability, the company has ruled out entering the mass sub-Rs 4 lakh category. Grappling with labour unrest, plant shutdowns and recalls, the company used the slowdown period to improve internal efficiencies. For example, inventory holding costs have come down by 50% over the past one year, says N Raja, director, sales and marketing. Now’s the time to shift into higher gear

    8. Nissan: Stuck with the slowdown

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    Nissan had a picture perfect start in India in 2010 with the Micra launch. The youngest MNC here invested in a huge capacity, had an export-led strategy to get quick scale and manage costs while pushing numbers in India. The portfolio also looks impressive, with the Terrano SUV, the Datsun Go hatchback, the Sunny sedan amongst others covering 95% of the market. Why then is market share stuck at just under 2% for the past two years? That’s disappointing for a company targeting a 10% share by 2017-18. “I think it is everything — bad luck, bad timing, bad marketing. I don’t think Nissan’s HQ understands India,” says Mohit Arora, executive director, JD Power Asia Pacific. It has a complex corporate structure with three entities — Nissan Motor India, Renault Nissan Alliance and Renault Nissan Tech Centre. Ajay Raghuvanshi, V-P sales and marketing at the flagship company, says Nissan is working to improve dealer connect and customer experience. That’s a start.

    The Economic Times

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