Vehicle makers pin hopes on festive season, BS-VI

Even as one of the worst slowdown in decades for the automotive industry continues, vehicle manufactures see some silver lining in the upcoming festive season, which historically forms around 60-70% of the annual sales.

Their hope is despite the fact that the sales during the last festive season were tepid.

P B Balaji, chief financial officer, Tata Motors said during a post-results conference call that the sharpness in slowdown was much more than expected, especially in the last quarter, which was among the worst in terms of demand.

"As liquidity starts coming in from intervention in the Union Budget, as the festive season starts kicking in, as BS-VI emission norms start coming in, we expect a gradual improvement from here, and that is what we are preparing ourselves. At the same time, we are also cautious that we are not over invested in inventory as we get ready for BS-VI migration."

Tata Motors witnessed a substantial increase in its losses in its latest financial quarter due to a prolonged slowdown in domestic demand combined with the bleak performance of its UK subsidiary Jaguar & Land Rover (JLR). The company on Thursday reported a 97% rise in its consolidated net loss for the April-June quarter at Rs 3,679.66 crore as against a loss of Rs 1,862.57 crore registered in the year-ago period.

The stakeholders claim that Indian auto sales are experiencing a prolonged slowdown for around a year. According to executives across the original equipment manufacturers, retailers and component makers, one of the primary reasons for the slowdown has been tightening of liquidity by non-banking financial companies, following the emergence of crisis at Infrastructure Leasing & Financial Services (IL&FS). The other prominent reasons include a rise in fuel prices, rural distress due to lack of rains in certain regions of the country, new insurance laws leading to increase in its costs and slowdown in certain industries leading to dip in consumer sentiments.

A 20-year analysis by research firm Edelweiss reveal that the industry is currently in the 'middle' of a down cycle, and therefore is still half a distance from recovery. The study said the current slowdown is different from the earlier ones on at least four counts- it is driven by domestic factors rather than global events, stiff competition from growing unorganised pre-owned vehicle market, significantly higher margin pressure and prohibitive jump in vehicle costs. Historically, global events such as the Asian currency crisis, dot-com bust and global financial crisis had triggered demand slowdowns.

Anuj Kathuria, chief operating officer, Ashok Leyland on the sidelines of the launch of its latest bus OYSTER, said, "The expectation is that after the monsoon is over and before the BS-VI comes, there should be some pre-buying. So that is a positive. To what extent the pre-buying will happen is to be seen." He said it is an interim slowdown and things will improve eventually. According to Kathuria, though the liquidity situation is getting better now it will still take some time to get normal. "Whether it will get to its original normal or this is the new normal, we will have to wait and watch."

Similarly, Pavan Shetty, Director of Porsche India in a pre-launch interaction with DNA of its refreshed Macan said that he is hoping that it (festival season sales) turns out to be better than last year.