The Slowdown Continues

Writing on the wall!

Policy paralysis coupled with European woes and a supremely conservative RBI is leading automotive industry to its worst performing quarter in last two years. With RSOs (Regional Sales Offices) of various OEMs choked up with commercial vehicles and plants coming to a standstill this year is already been written off by most companies. No body's taking a call as to when will the markets bounce back. Although there is hope with Mr. Mukherjee stepping down as the FM.

The industry sentiment seems to be negative overall except the export markets particularly Africa and Middle East. All the OEMs are focusing on exports for salvaging the current quarter. Only Ashok Leyland seems to be doing slightly better in India than its peers due to the South India market which hasn't been as bad as rest of the country. Additionally Leyland is strong in the Defence and Government segments which generally are the silver lining during a slowdown. The government typically expands it's spending to overcome the downturn. Additionally next year being election readiness year, we can hope for a massive expenditure on infrastructure which can help revive the Indian economy.

Personally, I am bullish and see a positive future September '12 onwards specifically for the Indian automotive market. Let's keep our fingers crossed.

Tax on Diesel cars?

It is more than likely that government will impose diesel tax on cars this budget 2012 and there are clear factors for the same:

1. The budget deficit is climbing and government wants every Rupiya to control the same
2. Government does not have the guts to De-regulate diesel prices, which is the right thing to do.
   
3. Congress has gone through tremendous defeats in the just concluded polls in 5 states. They have no choice but to go in for populist measures in the budget keeping an eye on 2014 elections. A lot of people think that the government is subsidizing fuel for the car owners and the government would want to change that perception before the central elections

The decision may end up disrupting the automotive industry which is already under pressure due to high interest rates and rising petrol prices. Ideally the government should de-regulate the diesel prices so that the markets take it's own course.

But now is NO time for correct policy decisions... it is time for populist measures and build up the vote bank? or is it?

Tipper Sales Dropped in Feb'12 and continues...

It seems that all OEMs have build up stocks in their RSOs (Regional Sales Office Yards) for tippers in particular. The bumper sale in last nine months of the financial year 2011-12 has finally started to play catch up! or is it??

With government spending on infrastructure and demand for housing not subsiding, one side of the story is that people are waiting for the interest rates to drop to start purchase of vehicles. The industry and the government is lobbying with the RBI to drop rates when it comes out with a fiscal policy decision on 15th March. Shrewdly the finance minister has kept the date for the budget on 16th March so that he still has time to make changes according to RBIs policy statement.

The other side of the story is that the tipper market has already grown by more than 60% Y-O-Y which is much higher than previous years. Hence the demand is fading away for the last quarter of the year. There is another aspect to it as well. There is a high probability that the finance minister may announce a higher excise duty for commercial vehicles (approx. 2% increase) in the budget. The government is struggling with the fiscal deficit and would want to increase its source of income for next year. It must get the deficit down. This may further dampen the sentiment though for the CV market. Hence the finance minister wants the RBI to cut rates by at least 0.5% so that the overall excise burden on the truckers is negated.

We have to wait and watch but my take is that RBI has no option but reduce interest rates specially considering that food inflation is negative for a long time now. It may go in for a lower moderation of about 0.25%. This will give a lot of food for thought to our finance minister. Lets See!