THE Indian automobile sector, which has been going through a rough patch over the past three years, is finally showing signs of some revival. Car sales, which had declined by 7pc in 2012-13 and 5pc in 2013-14, expanded at a cautious 5pc last fiscal.

Encouragingly, the new fiscal has seen this trend being maintained. According to the Society of Indian Automobile Manufacturers (Siam), the sale of passenger vehicles grew by 9.98pc in April and May, as compared to the two-month period in 2014-15. Passenger car sales shot up by 12.7pc.

But the most encouraging signs of a revival in the automobile sector were in the medium and heavy commercial vehicles (M&HCV) segment, which saw a growth of almost 25pc in the first two months of the current fiscal.

“At present, we are in a slow recovery mode, with some segments showing growth and some declining,” remarked Vishnu Mathur, director-general, Siam. “Even segments such as cars, which have shown growth, haven’t reached peak levels.”

Commercial vehicle manufacturers are confident that demand for medium and heavy trucks will continue to rise over the rest of the year, as there is gradual improvement in the infrastructure sector, including road building and mining.

Sales of M&HCVs jumped by a hefty 62pc in the first four months of 2015, touching 67,500 units from 49,400 last year. There are a handful of manufacturers in this segment — Tata Motors, Ashok Leyland and Mahindra & Mahindra, who are domestic players, and Volvo-Eicher and Daimler India Commercial Vehicles.

Last month, more than 8,000 heavy commercial vehicles were sold, the highest in four years. “We have noticed a consistent upward movement in the heavy commercial vehicle sales for the past one year that could augur well for the economy,” adds Mathur. He notes that demand for buses has also gone up, as government-owned transport operators are expanding their fleet.

But demand for light commercial vehicles (LCVs) has not revived. In May, sales dipped by 7.19pc and analysts expect demand to be lacklustre for the rest of the year.

Indeed, with the Indian Meteorological Department (IMD) having predicted deficient rainfall for the four-month monsoon season, overall demand for automobiles could be dampened, especially in the rural areas.

According to Siam, two-wheeler sales saw de-growth of 0.73pc in April and May. While scooter and moped sales grew slightly, motorcycle sales dropped by nearly 3pc. Demand for motorcycles is strongest in rural areas, but with unseasonal rains during the first, which destroyed standing crops, rural off-take was adversely affected.

Two-wheelers account for the bulk of unit sales in India. During 2014-15, India produced 23.36m units of vehicles, of which two-wheelers added up to 18.5m units. Passenger vehicles (including cars and utility vehicles) production amounted to 3.22m units, while commercial vehicles added up to 697,000 units and three-wheelers made up for the rest (about 950,000 units).

WHILE domestic demand for automobiles in India has been rather slow to pick up, the country has been doing quite well on the export front. Exports of vehicles have climbed every year since 2000. In 2009-10, India exported 1.8m units of automobiles. The figure almost doubled last year to 3.57m units.

Again two-wheelers account for the bulk of the exports. Last year, India exported 2.45m two-wheelers and 622,000 passenger vehicles. The industry also exported more than 400,000 three-wheelers and about 85,000 commercial vehicles (which includes M&HCVs, LCVs and buses).

The biggest exporters of cars from India are international manufacturers, many of who have been establishing plants in cities such as Chennai, Ahmedabad and Pune, primarily for exports. One of the largest exporters is South Korean giant Hyundai, which set up a manufacturing plant near Chennai about 20 years ago.

The plant exports cars to nearly 120 countries. Last year, it exported 190,000 cars, which was an 18pc fall over the previous year’s figures. Hyundai’s exports out of India have plunged as it has established plants in Turkey and the Czech Republic to cater to the European market. Cars produced at the Chennai plant are sold elsewhere in Asia, Latin America and Australia.

But other international manufacturers have been stepping up their exports from India, though from a relatively smaller base. German maker Volkswagen, for instance, saw a near doubling of exports last year of its Polo compacts and Vento sedans, adding up to almost 65,000 units. Japanese producer Nissan also saw a 3.5pc rise in exports in 2014-15 to 120,000 units.

American major Ford reported a 70pc jump in exports from India to nearly 82,000 units. The company is now investing $1bn in a new factory at Sanand near Ahmedabad. It will have a capacity of almost a quarter million units, half of which will be exported.

Last month, German commercial vehicles major Daimler set up a greenfield facility near its existing Chennai plant to manufacture buses. This is the only Daimler plant worldwide which will produce trucks, buses and engines — under three brands, Mercedes-Benz, BharatBenz and Fuso — at one plant.

“We are the only multinational maker in India to be an end-to-end player in the complete CV segment,” remarked Wolfgang Bernhard, member, board of management, Daimler Trucks and Buses. “We see India emerging as the largest market for both buses and trucks by 2020.”

Many of the international automobile majors are also setting up R&D centres in India. They include General Motors, Mercedes-Benz, BMW, Honda Motors, Maruti-Suzuki, Renault-Nissan and Volvo.

Automobile manufacturers, both domestic and international, are planning to invest about $10bn over the next few years in new facilities across India. The automobile manufacturers planning to invest huge sums include Suzuki Motors (Rs85bn), Ford Motors and Renault-Nissan (about Rs50bn each), Isuzu (about Rs30bn), Fiat-Chrysler (about Rs25bn), Volkswagen, Volvo, BMW, Honda and Mercedes-Benz.

• Published in Dawn, Economic & Business, June 22nd, 2015*

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