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| India Infoline Sector Reports | Thu, 11-Dec-2003 11:57:29 IST (GMT+5:30) | |
| Automobile - Cars | ||
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Demand-Supply Scenario And Exports Demand The demand for cars in the past was supply driven as demand did not match supply. This led to high premium and long waiting periods for the cars. But change in government policies coupled with aggressive capacity additions and upgradation of models by MUL in the early nineties led to increase in supply and subsequently reduced the waiting periods for economy cars. The demand for cars was suppressed by various supply constraints. The demand for cars increased from 15,714 in FY60 to 30,989 in FY80 at a CAGR of only 3.5%. The entry of Maruti Udyog Ltd (GoI-Suzuki JV) in 1983 with a "peoples" car and a more favorable policy framework resulted in a CAGR of 18.6% in car sales from FY81-FY90. After witnessing a downturn from FY90 to FY93, car sales bounced back to register 17% growth rate till FY97. Since then, the economy slumped into recession and this affected the growth of the automobile industry as a whole. As a result car sales remained almost stagnant in the period between FY97 and FY99. CAGR recorded during the FY94-FY99 period was 14.4%, reaching sales of 409,624 cars in FY99. However, during FY2000, with the revival of economy, the segment went great guns posting a sales growth of 56%yoy. The table below indicates the past sales trend for cars -
Source : SIAM The demand for cars is dependent on a number of factors. The key variables are per capita income, introduction of new models, availability & cost of car financing schemes, price of cars, incidence of duties and taxes, depreciation norms, fuel cost and its subsidization, public transport facilities etc. The first four factors viz, increase in per capita income, introduction of new models, availability & cost of car financing have positive relationship with the demand whereas others have an inverse relationship with demand for cars. The demand for cars in the future can be estimated with the help of making use of macro economic variables like growth in GDP, per capita income etc. or house hold penetration technique. An attempt is made to estimate the potential demand for passenger cars based on the household penetration level of passenger cars as explained in Annexure 4 of the report. The demand for cars in the future is expected to come predominantly from the existing two-wheeler owners who will be upgrading to a four-wheeler, due to rising income and necessity of car for personal transportation purposes. Therefore, excluding the owners of mopeds, the potential demand for cars in the next fifteen to twenty years can be taken as 50% of the existing two-wheeler population of around 28mn units. But with the release of new models in the higher end of the economy segment, the supply of second hand economy cars is expected to increase substantially, which will be costing just about two times the price of premium range two-wheelers. This could affect the demand for first hand/new cars. Also, with cross demand from utility vehicles, availability of finance and other factors the above mentioned potential for cars will be difficult to realize. Growth in the segment thus is expected to hover around 15-20%yoy. The dominance of economy segment will continue in the future as it will provide large volume to Indian car industry. This is because a majority of customers for cars will graduate from two-wheelers. The demand for mid-sized and premium cars is expected to rise as new models enter the market, income levels rise and present car owners upgrading from the economy segment to higher end cars. Supply The supply of cars in Indian industry till 1991, was dependent upon the production capacity of individual players. The production of cars has increased from 42,475 units to 181,420 units from 1981 to 1991 respectively. The growth in production of cars has varied in the last three decades from just 1% in 1970-80 to 21% in 1980-90 and above 15% in 1991- 96. The table below gives the production numbers of passenger cars in the past few years.
Source : SIAM (excludes the figures related to Daewoo and Honda Siel) The major increase in production of cars in the 80's was due to the entry of MUL in 1983, which helped increase car production by 20,000 to 30,000 cars per annum till the early nineties. With the entry of MUL, the face of the passenger car industry changed forever. Existing producers who had operated in a protected, high margin environment faced the prospect of not just diminishing market share, but a shift in focus from producing vehicles to selling them. But MUL made use of the opportunity open to its technologically superior product and increased its capacity from 100,000 cars in FY90 to 240,000 cars in FY96 and 350,000 cars in FY98. The opening of economy in 1993, attracted world majors who joined hands with existing auto majors, to start their operations at the earliest. The first ones to enter the field were Mercedes Benz in joint venture with Telco to manufacture E220, E250D models, Peugeot in JV with PAL to manufacture Peugeot 309L, Fiat in JV with PAL to manufacture Fiat Uno. This has helped in increasing the number of models available to the customer from 8 to 30 and hence provided a wide choice to him. This has also helped in reducing the average waiting period and premium on cars, which were a part and parcel of car cost in the eighties. Market share The market shares of leading players for the month of May 2000 is as given below.
Source : SIAM MUL has lost market share during the past two years. From a high of around 80%, it has now come down to 62.2% in FY2000. Offerings from new players like Ford, Hyundai, Daewoo and Telco have captured a substantial market share from MUL. PAL Puegeot and Fiat India, which have commanded a good part of the market in FY97, have now fallen back on hard times. During FY2000, the passenger car rally was as usual headed by the economy cars. Maruti which is facing a constant threat from Hyundai (Santro) and Daewoo (Matiz), came out with Japan's largest selling model Wagon R. Also, the mid sized segment saw some action signifying its growth potential. The car market which had witnessed a flurry of new launches in the economy segment in FY99, was now party to sleek entrants in the mid sized segment from Hyundai (Accent), Ford India (Ford Ikon), Daewoo (Nexia) and Fiat India (Siena). Also MUL (Baleno) and GM (Opel Corsa) belonging to the higher end mid sized segment also hit the ramp. The constantly escalating competition in the economy segment forced the players into further price cuts. Recently, Maruti lowered the prices of its economy cars by as much as Rs40,000. Capacity The present production capacities is detailed in the table below. This has increased from an estimated 600,000 units in FY98 to the present 727,000 units in FY2000.
Thus, capacity utilization in FY2000 stands at 79.4%. This is still better than utilization levels the world over which stands at around 40%. Production capacities is expected to increase in the next two years as players introduce new models. The major increase in supply, as was witnessed in FY2000, will be in the mid-size and luxury segment. The supply in the future, taking into account the plans announced by the car majors is expected to grow to 1,070,000 cars by 2002. The segment which has seen a number of new entrants in the recent past will see two new models from the stable of Maruti namely the 'Alto', which will be available in the 800cc and 1000cc configuration. However, industry sources have indicated that after the hectic action of the past two years, this segment will slowly witness some stability in terms of sales volumes and prices. The entry of new players is expected to create a marketing warfare in the car industry. A start has already been made by sharp reduction in prices of Daewoo 'Cielo' and Maruti 800. Lately, the price of Wagon R was also lowered by MUL to face the intensifying competition. However, with manufacturers having to comply with Euro emission norms, car manufacturers have sold their products at lowered margins. This is expected to effect their ability to reduce prices in the future. Increased support through finance from auto manufacturers was quite evident in FY2000. This has and will in the future induce existing owners of cars to go for technologically superior products in the same segment leading to sharp drop in prices of second-hand cars. This will also create a platform for upgradation of existing two-wheeler owners to four-wheelers. The luxury segment will see more new entrants namely Toyota of Japan, Skoda of Czech Republic and Proton of Malaysia in the years to come. Recently, companies like MUL, GM and Hindustan Motors have come out with new models to cover the present gap in the segment. Therefore, the customer will be having a wider choice to choose depending on his specific needs. Exports The passenger car exports in the eighties and early nineties had been very negligible as the companies were facing capacity constraints, that was not even sufficient to supply to the domestic market. The poor quality of cars compared to international standards led to poor quantity of exports from the country. In 1985, MUL started exporting cars to neutralize the impact of foreign exchange outflow. The exports of MUL increased from 100 cars in FY87 to 6,000 cars in FY90. The exports witnessed further momentum in the nineties to reach a volume of 37,161 in FY97. But from FY98 onwards, a southward trend was witnessed with declining sales of 20% yoy to 29,747 vehicles. The same continued in FY99 with a further drop of 14%yoy to 25,464 units. FY2000 too saw lackluster exports with a 9% fall in export sales which touched 23,271 units. The reason for sharp drop in car exports has been a drop in MUL exports, which now accounts for 90% of the country's total exports. However, exports are expected to increase in the near future as for the first time, new entrants like Daewoo, Hyundai, Honda Siel, GM and Ford are busy investigating options in the world markets. Daewoo has already made a beginning by exporting its small car Matiz to Italy. Also GM has commenced exports to Nepal and is further considering Sri Lanka as a potential export market. Further Ford is scheduled to commence exports by the end of the third quarter of the current fiscal. In the longer run, as the industry matures, exports should increase as manufacturers strive to attain economies of scale, which will not be possible given the relatively small size of the domestic market.
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