Plunging sales, strikes—a year to forget for auto industry: 2011 Review

After a rough ride in 2011, the Indian auto industry is looking with optimism to the New Year. The industry is hoping that the forthcoming Auto Expo in the national capital will provide the much-needed boost to the sector and will help it cruise in the year ahead

New Delhi: A year that began with a bang only to fizzle out in the end with car sales posting the steepest fall in nearly 11 years; a year marred by strikes—2011 will be one that the Indian automobile industry would like to forget in a hurry, reports PTI.

At a time when sales were hit badly by higher interest rates on automobile loans and costlier fuel, crippling labour disputes affecting firms like Maruti Suzuki, General Motors and MRF made the industry hit the headlines for all the wrong reasons.

Nevertheless, one of the major milestones for the year for the industry was the launch of a new brand identity by the BM Munjal-led Hero Group, following the break-up of erstwhile Hero Honda, and announced its strategies for a solo journey without former Japanese partner Honda.

The year gone by also witnessed some exciting new model launches, including Hyundai’s 800-cc car Eon, and some intense moments between the West Bengal government and Tata Motors on the return of land in Singur following the relocation of the Nano plant.

Yet when it came to sales, it was a case of gravity finally catching up with the zooming sales that were witnessed in the previous year. After bidding adieu to the 2008-09 slowdown and posting robust growth of over 25% last fiscal, it is now likely to see a low, single-digit increase in vehicle sales in 2011-12.

Indian car sales hit an all-time monthly high in January 2011, registering a jump of 26.28% to 1,84,332 units. However, with rising interest rates and fuel prices, the sales started moderating during the year.

With rising inflation, the Reserve Bank of India (RBI) started increasing the key policy rates, leading to a hike in interest rates on auto loans. It was a double blow for the auto industry as fuel prices, especially petrol, kept on rising throughout the year.

Vehicle sales started falling again with the industry fearing a comeback of the ghost called ‘recession’.

The Society of Indian Automobile Manufacturers (SIAM) lowered its growth forecast for 2011-12 twice during 2011 after announcing it for the first time at the beginning of the fiscal. It is expected to revise it downward again in January on account of sluggish demand in the last couple of months.

On a year-on-year basis, car sales in India have been declining since July, mainly due to the severe impact of labour issues on Maruti Suzuki India’s (MSI) production.

Sales registered their steepest monthly decline in nearly 11 years in October this year, tanking by 23.77% on account of a huge drop in output by MSI due to labour trouble, coupled with high interest rates and fuel prices.

The car segment, however, witnessed a turnaround with 7% growth in sales in November on account of a marginal revival in demand, coupled with a low base. Sales in December are likely to be lower than the November numbers, SIAM said.

Labour strikes, which hit the country's largest car-maker Maruti Suzuki India severely, did not spare other auto-makers either. MSI suffered a total of 60 days of production losses due to three instances of labour unrest at its Manesar plant, which mainly produces the Swift.

In June, a 13-day strike brought production to a standstill. This was followed by another standoff on 29th August between the management and the workers, which lasted for 33 days.

Nevertheless, not all was gloom and doom in 2011 and some raised a toast and said cheers too! India's largest two-wheeler maker, Hero MotoCorp (formerly Hero Honda), announced a new brand identity at a glittering event in London that was attended by tennis player Boris Becker, singer Akon, F1 driver David Coulthard and Bollywood superstar Shah Rukh Khan.

The BM Munjal-led Hero Group announced plans to set up two new manufacturing plants in the country and will pump in more investments in the next five years than it has done in the last 27 years during its partnership with Honda.

Amid the slowdown blues, Korean auto major Hyundai Motor Co launched its entry-level compact car Eon that has been developed specifically for the Indian market. The 814-cc small car was pitted against India’s best-selling Alto model from rival MSI’s stable.

Although Hyundai was planning to sell about 12,000 units of the Eon every month, sales are getting affected because of the overall negative sentiment in the market. It is currently selling around 6,000-7,000 units every month.

During the year, Honda announced a foray into the highly competitive low-price compact car segment in India with the launch of its Brio model, competing against the likes of the Hyundai i10, Maruti WagonR and General Motors Chevrolet Beat, which are priced in a similar range.

Toyota Kirloskar Motor also entered the small-car segment with Liva, the hatchback version of its sedan Etios. The company later introduced it with a diesel option as well.

The year witnessed continuation of the bad blood between West Bengal’s ruling party, the Trinamool Congress and Tata Motors, which had shifted its Nano plant out of the state in 2008 following violent protests.

The 997 acres of land leased to Tata Motors was vested by the state government vide the Singur Land Rehabilitation and Development Act, 2011, for return to farmers.

Later, a division bench had stayed distribution of 545 acres of land leased to Tata Motors on an application by the auto-maker, which appealed against the single bench order upholding the vesting of the Singur land leased to it.

After that, 31 component manufacturers had moved the court seeking a stay on distribution of the land allotted to them. The bench stayed distribution of the 290 acres of land allotted to 57 vendors of car components till disposal of the cases challenging the vesting of the land by the government.

Last month, the Calcutta High Court granted a stay on distribution of land allotted to vendors at Singur beside the Tata Motors’ Nano project plot by the West Bengal government.

In other developments during the year, in May, the Cabinet approved divestment of the government’s entire 95.38% stake in three-wheeler maker Scooters India, which has been suffering losses since 2002-03. Its entire net worth had eroded by 2008-09.

However, toward the end of the year, the government put on hold the proposed sale of the sick PSU and decided to review the proposal ‘holistically’ before taking a final decision amid volatile market conditions.

After a rough ride in 2011, the Indian auto industry is looking with optimism to the New Year. The industry is hoping that the forthcoming Auto Expo in the national capital will provide the much-needed boost to the sector and will help it cruise in the year ahead.


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