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Indian auto sales decline as the middle class myth disappears

Consumer demand
By Paul Hodges on 16-May-2014

India autos May14India’s stock market has hit new records this week, as investors anticipate radical policy changes after election results are announced today.  And the chart above highlights a key area behind the need for change, namely the problems of the important auto market:

  • Indian auto sales dipped in April to just 183k (red square)
  • This is the lowest April figure since 2009 (blue line)
  • The boost from stimulus programmes since then has now completely disappeared
  • Even the pre-election tax cut appears to have had only a very temporary impact

As the detailed data from Team-BHP shows, only 5 models managed a month-on-month increase in sales.  Whereas there were 10 models with >40% volume drops.  And overall, the market is now down 5% in 2014, after an 11% decline last year (green line).

Stock markets often travel in hope, and then turn down when reality arrives.  Thus the new government will have to move fast to reverse current trends, before its honeymoon period ends.  Its key issue is that there is no ‘quick fix’ for the problems it faces.

Investors and company executives all wanted to believe that India had suddenly become ‘middle class’ with Western spending levels.  But in reality per capita income this year is expected to be just Rs 74920 ($1200).  Until the government resets expectations, they will find it hard to make much progress.

The key is to accept that the idea of India being middle class is a complete myth.  Investments made on this assumption either need to be closed, or sales redirected into export markets, as Ford is doing with its Ecosport model.

Instead, the business model should be that of Hindustan Unilever, India’s largest consumer products company.  Their mission statement sums up the world of the New Normal, as we discussed in Boom, Gloom and the New Normal:

We meet everyday needs for nutrition, hygiene and personal care with brands that help people feel good, look good and get more out of life.”

Unsurprisingly, they continue to do well, with Q1 profits up 9%.  Its a great pity that so much money and effort has instead been wasted by other companies in pursuing an illusion.