Auto companies are busy producing more and more vehicles to meet increasing demand in the domestic market. However, many dealers,sub-dealers are asking buyers to cough up 'on money' or premium for immediate deliveries
Remember the heady days of the mixed economy when an Indian who wanted to buy a bare-boned Bajaj scooter - or any other vehicle for that matter - had to wait for a few years to get actual delivery?
History - of sorts - seems to be repeating itself in the Indian automobile market. Only this time, it's a problem of plenty. Manufacturers are notching up impressive sales figures, but many customers, who want to buy a vehicle, are finding it difficult to get possession even after making full payment in cash. That's because various automobile dealers also want to earn some extra bucks in the boom.
Therefore, if you pay extra 'on money' (read premium) then you can get any vehicle that is being sold in the country immediately. If you would rather not spend the extra money, then you will have to wait for almost eight months (in a few cases) before you get possession. The scenario is the same for some top-selling cars and two-wheelers (especially scooters).
Moneylife contacted various dealers in Mumbai to ascertain the ground reality. If you wish to buy Toyota's 'Innova' diesel version, then it takes at least a month to receive the delivery of your car. Toyota Innova's petrol versions are not readily available with dealers in Mumbai and buyers have to wait for two to three months. This is surprising, considering that the demand for the petrol variant of the car is supposed to be on the lower side because of comparatively higher fuel cost and low mileage.
The wait for Toyota's sports utility vehicle 'Fortuner', which was launched on 24 August 2009, is even longer. The company had an order backlog of 6,000 units for its SUV within a month of its launch. Dealers have kept bookings on hold and there is a waiting period of six to seven months for new buyers. The Toyota Fortuner is the latest favourite toy among politicians and other well-connected individuals.
Toyota is not the only company whose vehicles are in good demand. From Maruti Suzuki and Tata Motors to new entrant Nissan, all automakers are finding it difficult to meet the demands from markets.
"There is huge demand in the Indian automobile market. Our manufacturing facilities are coming up with around 1,00,000 vehicles a month. This is around 20% more than our capacity, every month. In fact, in the current fiscal, our production is around 24% more than last year. At the beginning of this fiscal, the growth estimates were around 12%-15% for the industry but much greater bounce has been seen in recent times, resulting in a shortfall in delivery and a (supply) mismatch in the market. As a counter-measure, we are trying to increase production at all our facilities by 'de-bottlenecking' operations and streamlining processes," said a Maruti Suzuki official, preferring anonymity.
During April-July, Indian automakers produced 898,429 passenger vehicles, an increase of 31.7%, while they sold 899,795 units, including 756,659 units in domestic markets. This represents a growth of 33.8% in domestic sales and 9% growth in exports from the year-ago period.
The mismatch between the automobile industry's expected growth rate and the higher-than-expected demand from consumers is believed to have led to this situation of customers having to wait for the vehicle of their choice.
However, what is the ground reality? If you are ready to pay the extra premium in cash, then you can buy and take delivery of almost any vehicle from dealers. In fact, we made a few unannounced visits to the warehouses of various dealers - where there is absolutely no space to stock existing inventories. On the other hand, auto manufacturers, riding high on current demand levels, are speeding up production schedules.
According to a Tata Motors official, the company has built up stocks to ensure that the demand for the forthcoming festive season can be met immediately. "Production is matched with demand, but at times a waiting period does develop for exceptional models in a range," the official said.
Consumers wanting to buy the Nissan Micra's variant 'XL' have to wait for one month while for the top-variant 'XV', the period is two to three months - depending on the city from where you want to make the purchase. "We hope to reduce the waiting period to less than two months. We had not factored that in our initial production period schedule but now because of our flexibility in the manufacturing line we are able to amend the production schedule. We have an order book of around 4,000 cars, out of which we have already delivered 2,000 cars," said an official from Nissan Motor India Pvt Ltd.
To meet the increased demand, while auto manufacturers are ramping up production, others are setting up new plants at a faster pace. The Maruti Suzuki official said, "On a longer-term basis, we have invested in a new manufacturing plant that will add 2.5 lakh units to our capacities, by 2012. Efforts are underway to complete this new manufacturing plant faster, in view of the market demand situation."
The demand-supply mismatch and 'extra premium' scenario is prevalent in the two-wheeler segment as well. Surprisingly, scooters (almost all of which are gearless now) are in huge demand, even compared to the booming motorcycle market. The delivery period for scooters is also much more than motorcycles, with Honda's 'Activa' having a delivery period ranging from two months to eight months across the country. Many dealers across the Mumbai Metropolitan Region are citing non-availability of stocks as the primary reason for the delivery problems, purposefully overlooking their overflowing warehouses.
A sub-dealer of Honda told Moneylife, "The on-road price of the Activa is Rs50,800, but if you want the delivery tomorrow then you have to pay (a) premium of about Rs10,000. For a new Activa, there is a waiting period of seven months. Earlier, there was a premium of Rs4,000 to Rs5,000 but now it has gone up to Rs10,000 due to supply problems."
This sub-dealer says that authorised dealers are not charging any premium for immediate delivery. He says, "You don't have to pay the premium if you buy it from authorised dealers but you have to book the bike first and wait for seven months. They will not take a single (extra) paisa on (the on-road price) but will put you on the waiting list."
According to other sub-dealer, who deals in all kind of two-wheelers, for an Activa, the delivery period is almost six months. If you want urgent delivery, then you can pay Rs63,000 and take possession of the vehicle. The other option is to pay 80% of Rs63,000 and take delivery in three days by paying the balance amount.
So have Indian automakers grossly underestimated demand for their products? With stronger rural demand expected due to the good monsoon and the festival season coming up, would delivery schedules hit more bumps on the road? Or are a few middlemen going to play spoilsport by creating an artificial scarcity for vehicles - further muddying the waters, on and above the production constraints that Indian Big Auto seems to be facing?
According a report by brokerage Sharekhan Ltd, "We expect dealers to utilise the festive period (24th September to 7th October) to step up inventories to feed the festive demand. The industry has been vocal about vendor-side constraints limiting the final output. Almost all the players indicated a 10%-15% volume loss during the month because of component shortages. Our channel check revealed shortages primarily in bearings, tyres and castings," the report added.
The commercial seems to be finally back on track, totally slice-of-middle-class life, totally credible. Unlike the earlier juvenile attempt
So, Cadbury Dairy Milk seems to have settled down with the 'Shubh Aarambh' idea for the upcoming festive season. The thought, of course, is that ancient Indian quirk: Make new beginnings by sweetening the mouth, diabetic or not. The second commercial just went on air.
Readers will recall that a few weeks back(http://www.moneylife.in/article/78/7766.html), we discussed their first commercial in the 'Shubh Aarambh' series, and that one left me quite disheartened. It featured a couple at a bus stop. A young, teenage-ish girl is seen munching on her Cadbury Dairy Milk. The chap, also apparently waiting for a bus, demands to have a bite from the choc. The girl refuses. The mama's boy then uses that silly pick-up line. That his mummy says to start all new adventures with a Cadbury Dairy Milk. And that's it, the girl falls for it! I found the situation quite juvenile and predictable. And I got quite bearish on the idea.
However, I totally adore the new commercial, and this one targets the elderly citizens, while being pretty young in its approach. It's set in a middle class household. An aged couple is preparing to visit their relatives. Ma'am is decked up in a pair of jeans, and appears paranoid of being seen in that attire. Especially by her saas. The hubby, who perhaps knows his missus will be demolished, reassures her by offering her a bite from his Cadbury Dairy Milk. (Though I suspect she would have welcomed a cigarette in this situation!) So that they can make a 'Shubh Aarambh' for this precarious journey. Later, inside the building society compound, a young chap admires the aunty for her jeans. And all's well. What the ma-in-law would do is left to our imagination. My guess: She'll light the Cadbury Dairy Milk wrapper and set the poor woman's jeans on fire.
Okay, jokes apart, I really like this commercial. It's totally rooted in our desi tradition, totally slice-of-middle-class life, totally credible. And a plump-ish elderly Indian lady worrying about being spotted in a pair of jeans is a totally charming idea. One hundred times better than the previous bus-stop commercial.
So, great. Looks like 'Shubh Aarambh' is back on track. I do look forward to watching more ads in this series. Hope from now on the advertiser and its agency will stick to featuring surprising situations. And ones that are very, very 'hum log'. Just as the one above.
Reserve Bank of India governor Dr D Subbarao brought all his academic skills to the table for the M Chidambaram Chettyar Memorial Lecture at the Indian Institute of Science, Bengaluru, on 27th August to explain why the economic crisis hit the world. Dealing with the subject “Economic Crisis and Crisis in Economics: Some Reflections”, Dr Subbarao, an IIT physics graduate (Kharagpur) and a doctorate in economics from Andhra University, compared and contrasted the sciences of physics and economics to explain why economics went awry two years ago. “The years before the crisis saw economics as a subject gain impressively in clout and popularity. The price stability and macroeconomic stability gave economists an enviable halo; the increasing sophistication of financial markets where risk could seemingly be measured with precision of up to five decimal points gave economics the clout of prophesy; and the way economists were able to raise obscure questions such as why drug dealers continue to live with their mothers, what school teachers and sumo wrestlers have in common, and answered those questions with impressive insights, awed common folk.” Till the financial crisis came and crashed all this. “It now seems that by far the most egregious fault of economics, one that led it astray, has been to project it like an exact science.” The charge is that economists suffered from ‘physics envy’ which led them to formulate elegant theories and models deluding themselves that their models have more exactitude than they actually did. This “physics envy,” he said, led to “the obsession of economists with models; so much so that they convinced themselves that if something cannot be modelled, it is not fit enough for academic pursuit. Indeed, with the benefit of hindsight, it is now possible to see that one of the basic causes of the crisis was that the models used by central banks remained confined to the real sectors of the economy and did not capture the complexities of the financial markets. It is not surprising that economists missed seeing the crisis brewing in the underbelly of the financial sector.” Soon, he said, instead of fitting the models to the real world, economists were trying to fit the real world to the models. “The fundamental difference between physics and economics is that physics deals with the physical universe which is governed by immutable laws, beyond the pale of human behaviour. Economics, in contrast, is a social science whose laws are influenced by human behaviour. Simply put, I cannot change the mass of an electron no matter how I behave but I can change the price of a derivative by my behaviour… Physics, an exact science, explores known unknowns. Economics, a social science, deals with unknown unknowns. All through his life, Einstein remained sceptical about quantum mechanics.
In particular, he could not reconcile to the probabilistic nature of the physical world implied by quantum physics and famously said that ‘God does not play dice’. Less well known perhaps is the retort of Neils Bohr who told Einstein, ‘Albert, stop telling God what he can or cannot do’. Economists have a much humbler remit. They cannot even tell man, let alone God, what he can or cannot do.” So will economics stop behaving like physics? And will economists stop playing God? (See full text of the lecture on rbi.org.in).
The Vedanta Philosophy
The high point of the past couple of weeks has to be the rather dramatic rejection of the bauxite mining lease of Vedanta in the Niyamgiri hills of Orissa. The fact that the chief minister of a state personally represented to the prime minister of the country that the mining be allowed but was overruled by an environment minister, within two days of the appeal, clearly suggests that there are forces higher and mightier than the prime minister taking decisions. If Jairam Ramesh, as we have been pointing out in these pages regularly, is looking like he is no push-over, it is only because he has been told not to be a push-over by the Gandhi benefactors, especially Rahul. Denying permission for Vedanta had multiple benefits for the Congress Party. Firstly, it put Orissa chief minister Naveen Patnaik in a very tight political corner by showing him up as a friend of big business against the powerless tribals. Secondly, in the obsession with ‘growth economics’ of the past three decades, the tribal constituency so carefully cultivated by Indira Gandhi and lying vacant since the garibi hatao heyday, has been returned to The Family in one stroke. At another time, at another place, Vedanta might have gotten away with the alleged illegalities because the philosophy of realpolitik tells us that there are those illegalities that must not be tolerated and there are those illegalities that must be furthered…
…Such as the Airport at Panvel
That brings us to the clamour for the second Mumbai airport at Panvel. Jairam Ramesh has upset civil aviation minister Praful Patel, Maharashtra chief minister Ashok Chavan and a host of other corporate biggies and media houses no end, with his adamant refusal to fast-track the environment clearance. Mumbai is saturated and needs a second airport. But the question is where should it be? To Mr Patel and his band of influential backers it can be only at Panvel where, even by their own admission, about 200 hectares of mangroves (that protect the shore) will have to be sacrificed. When Mr Patel recently announced that Mumbai airport cannot handle any more private jets, he was seeking to scare corporate India and to put pressure on a central government that is ever eager to please businesses to achieve double-digit growth. So, no wonder, within days of rejecting the Vedanta proposal, Jairam met Praful to discuss the Panvel problem and both made friendly noises. On the same day, the Observer Research Foundation released a study which said Panvel is a bad idea even for purely business reasons. Firstly, the swampy nature of the land might make building an airport extremely expensive; secondly, the land available will allow only an airport of a capacity that will be saturated within two decades requiring a third airport soon enough. But you know what; my hunch is that the second airport will come up at Panvel. Ramesh will be made to see reason. In the light of the Vedanta refusal, corporate India, and the world, will need to be sent a message that India has not suddenly turned anti-big business. It is enough if Vedanta pays for now.
Not All Politics, Of Course
But if you think I am suggesting that Vedanta is a victim of just politics, of course, I’m not. It cannot be a mere coincidence that the refusal of permission happened just days after Vedanta announced acquisition of Cairn India. The same day, we were interviewing IOC chairman BM Bansal (for another magazine). We asked him why the biggest Indian energy company was sitting by idly when a private firm was making new forays. Mr Bansal told us IOC would look at acquisitions in the $1-billion or $2-billion range. Meaning, it had no cash to think of making a bid for Cairn and the idea didn’t even occur. But a few days later, reports started appearing of a combined PSU bid to thwart Vedanta. It’s clear that people other than just politicians are out to prevent Vedanta from becoming the biggest Indian conglomerate outstripping Reliance Industries.
BV Rao has wide experience across print, TV and digital media. He was group editor at ZEE News and senior editor with DNA and Indian Express.