India’s auto sales enter the New Normal

Consumer demand

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India autos Apr13.pngIndia is the 3rd largest Asian auto market after China and Japan, and a year ago its automobile association was confidently forecasting annual demand growth of 10%-12%. Instead, sales have fallen 7% (India uses an April-March year) – the first time annual sales have fallen for a decade. As Reuters notes:

“Carmakers in India, two years ago the world’s hottest growth market after China, have seen high interest rates, rising fuel prices and prolonged economic gloom turn an industry recently growing at 30 percent a year into one plagued by huge discounts, showrooms full of unsold cars, and chronic overcapacity.

These, of course, are not temporary factors. They will take years to work through, especially as the decline is worsening. Q1 sales were down 24% versus 2012. Whilst operating rates are just 55% with current capacity of 4.9m, as many automakers (and their suppliers) had believed the hype about growth being ‘inevitable’ and so have invested $bns in new capacity.

The problem is that manufacturers ignored the key lesson from the chart above. As the blog has argued for some years now, India is the 141st poorest society in the world with GDP/capita of just $1492 in 2012:

• Its automotive market is thus dominated by 2-wheelers (blue)
• Their market share has increased from 66% in 2008/9 to 70% today
• Car sales (red) by comparison are just 14% of the market

The main casualties are going to be those who wrongly believed that the phrase ‘middle income’ in India meant the same as ‘middle class’ in the West. They will discover the hard way that there is only a very limited market for their products. But Nissan with its proposed new $3k Datsun range could do very well. They simply need to learn the lessons from Tata’s fiasco with its Nano car, as we described in Chapter 7 of Boom, Gloom and the New Normal:

“Tata’s launch of the Nano thus offers an excellent example of the need to think through an implementation plan in relation to the Critical Success Factors that we have developed. Nano sales today are well below those expected, and have failed to build on its early momentum due to the problems encountered. This is a salutary lesson for a company like Tata, which is the market leader in India’s auto industry”.

Chapter 7 really should be required reading for any company planning new investments in today’s increasingly New Normal world

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