India has been one of the fastest-growing economies in the world and since its independence, industry sectors such as automobiles, textiles and agriculture have contributed immensely to the economy. The recent slump in car sales has pushed back the growth rate a bit, but this is not the full story behind the economic slowdown in the automobile industry.
The reason behind economic slowdown in the automobile industry is that the car manufacturers have not come up with more innovative and creative products that can ignite the customer’s desire to buy a car. Instead, the overproduction and stocking of cars by the old players have hurt their cause only. Bajaj Auto’s Managing Director, Rajiv Bajaj believes the crisis in the sector is of its own making.
There has been a huge reduction in the sales of traditional car brands sold in India but on the other hand, some new and innovative car brands have done better than expected.
Kia Seltos, MG Hector and Tata Harrier have superseded the sales estimates of nearly all self-proclaimed economist pundits who have seemed to somehow overlook this fact. These three vehicles are mid-size SUVs and the demand and excitement for them is something that has given joy to the car-makers.
During the little period of a rut in the economy which was bound to happen at some point, the sale of these cars has been more than expected. Aspirational value for cars, especially entry-level hatchbacks, have diminished over the past few years. Buyers are keen to make premium hatchbacks or compact SUVs like Hector, Seltos and Harrier as their first buy.
The automobile industry has seen a little bump in recent months and it is being attributed as one of the major reasons for the economic slowdown. The automobile sector under the Modi government had grown incredibly fast in the first four years, especially in domestic sales due to growth in the economy. The rising disposable income due to the cut down in the prices of basic goods and services has enabled the people to enjoy the vehicle rides.
The overall domestic automobiles sales increased at 7.01 per cent combined annual growth rate (CAGR) between FY13-18 with 24.97 million vehicles getting sold in FY18. The overall automobile exports from India grew at 6.86 per cent CAGR between FY13-18.
But in FY 19, the demand registered a substantial decline. The slowdown continued in the first five months of FY 20, the reason behind this being that entry-level demand has saturated in the last four years.
Almost every middle-class household which needed a car, already have it, and therefore the demand for mainstream commercial vehicles dampened. But amidst all this, a rather interesting trend has been observed where the customers seem to be preferring quality cars over the same-old boring cars being churned by the old-market players like Maruti Suzuki.
Amid an economic slowdown, MG Motor has sold 3256 “Hector” models in just 2 months whereas 28,000 more units have been booked.
Within three weeks of Kia Seltos’s launch, around 23 thousand people had already booked the car and it became one of the top-selling SUV’s of the year.
Tata Harrier has emerged as the dark horse which has performed exceedingly well. The aggressive marketing during the 2019 Indian Premier League seems to have paid off too. In January this year, Tata launched the brand and so far 10,000 people have booked the car while Tata has been able to deliver only 2000 vehicles. The waiting period of this vehicle is 4 months, that is, there is a lot of excitement about this vehicle in the market. The vehicle has also been ranked fourth in the list of top-selling mid-size SUVs this year.
Despite the sluggish consumption trend, the customers are not hesitating to buy a product if they love it. This means, the middle-class in the country possess the ‘purchasing power’, but is not willing to spend unless they get a good product.
It is quite clear that the automotive-companies need to step-up and instead of running behind quantity, focus on quality which the modern Indian customer seems to be focusing more on and then only the sales can increase. India is no longer the economy where you can serve the consumers anything ‘sub-standard’ and they will lap onto it.