into an auto overdrive

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http://www.business-standard.com/today/story.asp?Menu=27&story=16262

 

Published : June 12, 2003 For Disinvestment Minister Arun Shourie, the timing

couldn’t be any sweeter. After a pretty flat period last year, just at the time

of Maruti Udyog Limited’s all-important public offer, the automobile market

appears to have exploded. In the first two months of the current year, Maruti’s

sales have jumped around 40 per cent, and those for its bestseller, the M800,

have gone up around 65 per cent (for May alone, the jump was 80 per cent). Move

about 1,400 km south-west from Maruti’s Gurgaon factory to Tata Engineering’s

unit in Pune, and the same story is repeated — in fact, with a bit more

success. If analysts were astounded by the 55 per cent rise in sales in April,

Telco baffled them with a 68 per cent jump in May. May, in fact, is

traditionally regarded as one of the poor months for auto sales — Maruti

normally sells around 27,000 cars in most months, but managed to sell 37,000 in

May. The massive jump is explained by several things. For one, a massive 8 per

cent cut in excise duties in the Budget brought down the prices of most cars by

around 5 per cent. While salary hikes, at around 10 per cent on an average for

corporate India, have been lower than in most years, the much lower inflation

has meant that consumers may have that much more to spend. Add to this the even

cheaper cost of credit. In the case of Maruti, for instance, its tie-up with

State Bank of India has helped reduce financing costs by 2-3 percentage points,

and brought financing options to towns where such facilities were hardly there.

Two-day loan melas in cities like Tirrupur and Varanasi saw Maruti sell as many

cars on finance, as it did in a full month earlier! It also helped that, unlike

any other loan, SBI’s car loans extend for upto seven years, taking the EMI for

a one lakh rupee loan to around Rs 1,750 a month in comparison with Rs 2,100 or

so for loans by other finance firms, all of which have shorter duration. The

combined impact of the lower interest rates and the excise cut made it

possible, as Hyundai Motors’ President B.V.R. Subbu is fond of putting it, for

a customer to now buy an Accent for the same EMI he paid for a Santro earlier.

Hyundai’s sales jumped 39 per cent in May, and those for General Motors 41 per

cent. Of course, while tax cuts are important, they are only a part of the

story. In fact, sales for passenger car firms jumped dramatically in March

following the cut in the Budget, then stabilised at 28 per cent in April, and

have improved on this in May. An indication of the consumer revolution that has

once again gathered momentum is provided by the NCAER, which estimates that over

half the buyers of motorcycles in the country today earn under Rs 10,000 a month

— which explains why motorcycle sales have exploded from 6.5 lakh in 1994-95 to

3.7 million last year. In fact, according to the NCAER, the number of families

which can be considered affluent (those that own a car or a jeep) has gone up

six-fold, from 1 million to 6.2, in just six years from 1994-95 to 1999-00.

India is clearly in overdrive.

 

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