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AUTO EXPO 2012
Carmakers plan niche drive to expand stable
Chennai: With more than 60 new models and upgrades lined up for debut, Auto Expo 2012 in Delhi will pack in a lot of launch excitement. But unlike earlier years, this time car companies are looking to expand their stable by creating niche products. Across the price spectrum, from Maruti to Mercedes Benz, the idea is to try out something new, beyond bread and butter segments. Given the slowdown in demand, companies feel it¶s time to explore new segments which will be less price-sensitive and create a buzz. Known for its formidable footprint in the small car market, Maruti Suzuki is showcasing two new products this time round ² the Ertiga MUV and a concept compact SUV. Neither falls in the small car category. ³This is our way of expanding our portfolio and branching out into newer segments,´ says Mayank Pareek, managing executive officer (marketing & sales), Maruti Suzuki. ³Right now the Ertiga segment is virtually non-existent in India. So, we want to create this niche and ride the first mover advantage. That¶s the job of the market leader ² identify niches and cater to them ahead of the pack.´ MNC biggie Volkswagen, also known for its small car focus, will showcase itsiconic Beetle, a premium hatch whose Rs 20 lakh-plus price tag means it will never be a volume spinner. But as brand builder it pulls a mean punch. The company isn¶t showing its UP small car, already showcased at the Frankfurt Motor Show and has plans for an India launch. ³Our brand is still at a nascent stage of awareness so we wanted a brand building tool for the Auto Expo. The Beetle is our most iconic product and the best vehicle to create brand awareness,´ says Neeraj Garg, member board & director, Volkswagen Passenger Cars, Volkswagen Group Sales India. The company says there¶s no decision on launching the Beetle in India just yet. In the premium segment too the buzzword is niches with a difference. Both Mercedes Benz and BMW are showcasing products that are miles away from their core market of luxury saloons. While BMW is launching the iconic Mini Cooper premium hatchback in India, arch rival Mercedes Benz will showcase its B-Class premium hatchback, which is due for debut in India by 2012 winter. The Mercedes roster will also include models like the SLS AMG Roadster, the SLS GT3 and the DTM car along with a range of performance cars from the AMG stable. Like Maruti, Ford too is expected to showcase a compact SUV concept though company officials are tightlipped about the details. The company has only announced that it will showcase an ³all new vehicle planned for introduction in India and other global markets in the near future´. M&M will highlight its Ssangyong range including Rexton and Korando E. ³The
idea is to create some excitement during the expo but not everything that we showcase will come to India immediately,´ says Pawan Goenka, president-auto and farm equipment division, M&M.
Toyota recalls 41k units of Etios, Liva
TIMES NEWS NETWORK
New Delhi: Recall scare came to haunt Toyota in India as the company called back 41,000 units of its sedan Etios and small car Liva to replace faulty inlet pipe to the fuel tank. The two models, the company¶s bestsellers in the Indian market, had gone on sale this year and the problem was noticed both at dealership level and also by customers, Sandeep Singh, deputy MD (sales & marketing) of Toyota Kirloskar Motors, said. He added that while the problem did not pose any immediate threat, the company had decided to go for replacement on all cars sold as a precautionary measure. ³The whole process will take up to 45 minutes and it will be carried out free of cost. Dealers are in the process of contacting customers, asking them to get their cars inspected.´ While the Etios sedan had gone on sale in January this year, the Liva hatchback hit the market in June. The company sells the model in both gasolene and diesel versions and they have been behind Toyota¶s 89% sales surge in the Indian market this fiscal (92,546 vehicles sold between April-November 2011).
With this recall, Toyota joins companies like Honda, Maruti Suzuki and Skoda in India, all of who had to call back vehicles to fix faulty parts. Maruti had in April recalled 13,157 units of diesel cars manufactured between November 13 and December 4 in 2010, to inspect a defective part. That followed a similar move of February last year when it recalled more than 100,000 units of its small car A-Star to replace a defective part in the fuel tank. Honda Siel has had three recalls in India in the recent past, the latest being in September this year to replace power window switches on 72,115 City sedans manufactured between 2005 and 2007. Toyota is not new to recalls which came in as a crisis for the company in 2010 when it was hit by a global recall, though cars sold in India were not affected. Recalls are not very prevalent in India and companies are often reluctant to announce them as they fear a negative fallout on their branding. Lack of an official recall policy in India makes many of them go quiet on the matter and report it only when it affects the global markets, many of whom mandatorily seek announcement of a recall in case of a defect that is generic in nature.
NEW COVER
IRDA scraps motor pool as losses mount
Claims Of Uninsurable Vehicles Will Be Shared
TIMES NEWS NETWORK
Mumbai: In a move that will force insurance companies to be more efficient in managing claims by motor accident victims, the regulator has ordered dismantling of the motor insurance pool a mechanism where motor liability claims were shared by all non-life insurers irrespective of whether they had any motor business or not. This will be replaced by a pool of declined proposals where only claims from vehicles considered uninsurable will be shared. The move is a negative for public sector companies which have the highest motor third-party claims and a positive for private companies which now do not have to fully share PSU losses. According to IRDA, the current structure of the pool is severely affecting the viability of the non-life industry due to alarming capital depletion. The regulator has said that there was huge inefficiency in claim settlement with claim ratios differing by as much as 100% between companies. Under the earlier pool structure where the total loss on motor-third party insurance was distributed among all companies in proportion to their overall market share. From April 2012, this will be replaced with a structure where every company will issue policies to everyone who approaches it. If any proposal does not fall within a companies underwriting parameter, it is free to transfer the premium and the risk to a declined risk pool where the loss will be shared based on market share of motor business and overall business. There will not be any impact on pricing as motor third-party premium will be calculated based on a formula which takes into account claims. But since the new structure will improve efficiency in claims management policyholders can look forward to better rates when claims come down, said Bhargav Dasgupta, MD, ICICI Lombard General Insurance. The insurance regulator had introduced a motor thirdparty insurance pool in 2007 after PSU insurers complained that private companies were not avoiding proposals for third-party insurance cover from commercial vehicles as this business was loss making. While the business was unprofitable insurers, were required to provide the cover as it was mandatory for vehicle owners to buy the cover.
Irda Finally Junks Third-Party Motor Cover Pool
New, smaller pool to help private insurers reduce losses, make state-run companies more efficient
OUR BUREAU MUMBAI
The Insurance Regulatory and Development Authority has dismantled the four-yearold thirdparty motor insurance pool blamed by private insurers for their losses, but is replacing it with a smaller one that may force state-run companies to improve efficiency. The new plan provides an option to insurance companies to choose the liabilities they would bear totally, meaning they would pay up 100% of the claims. Where they see high claims, such as on trucks, they can dip into the pool, where every insurer contributes depending on its market share. The existing Indian third-party motor pool shall be dismantled, the regulator said in a note on its website. The third-party pool, introduced in 2007, has been criticised by private insurers saying they are forced to bear the burden due to the sloppy due diligence done by public sector general insurers. But the state-run insurers say their presence across the nation, even in smaller towns unlike private ones that cherry-pick customers in cities, make them vulnerable to disproportionate claims. Earlier, everything was going to the pool, said Gaurav D Garg, managing director and CEO, Tata AIG General Insurance. It had become the biggest insurance company in itself. Efficiency of managing claims was low. Now, overall size will reduce and become equitable. The latest move by Irda will enable insurers to decide on whether they want to write the thirdparty liabilities in a policy involving a Maruti car, or a Mercedes Benz, or a Tata truck. They could choose to pay up claims in cities where accidents may be less frequent, while transferring to pool those coming from hinterland, where there are more accidents. This, in insurance parlance, is called declining risk pool . New India Assurance had plunged into losses last year for the first time in 91 years due to third-party motor pool. The current pool is likely to see around 4 lakh claims this year, and is forecast to get a contribution of around . 5,400 crore. New Pool Structure Big Change But the payout may be around . 8,000 crore, inflicting losses on every insurer. Public
sector general insurers have lost more than . 25,000 crore in the past 20-30 years. The new pool structure is an important first step towards addressing the issues around commercial vehicle third-party insurance and reforming them, said Ritesh Kumar, chief executive at HDFC ERGO. The structure is simple to implement and ensures there are no supply-side constraints on availability of insurance covers. The declined pool would be extinguished at the end of every underwriting year by transferring the risks at par to members who have not fulfilled their mandatory obligations. Every insurer will have to underwrite a minimum percentage of standalone commercial vehicle motor third-party insurance, the regulator mandates. This would be in proportion to the sum of 50% of the company s percentage share in total business, and 50% of the total motor premium of the industry in a current year.
Recalling the Product Recalls
Toyota has just recalled 41,000 of its Etios cars in India to replace a faulty filler hose pipe. In September, Honda issued a recall for 72,000 cars of its City model to replace defective power window switches. Here are some of the big product recalls in the last few years in India, and globally
ICRA has come out with its report on Indian passenger vehicle (PV) industry. According
to the research firm the cars segment de-grew by 3.5%, during 8m FY12, while Utility Vehicles (UVs) and Multi Purpose Vehicles (MPVs) reported a growth of 11.1% and 10.3%, respectively The Indian passenger vehicle (PV) industry has experienced a period of strong volume growth in the last five years riding on strong economic growth, rising disposable incomes, favourable demographics and relatively low penetration levels. Frequent introduction of new models by Original Equipment Manufacturers (OEMs), incumbents as well as new entrants, and adequate financing availability also contributed to the growth momentum. As demand
and supply tangoed, the industry¶s volumes grew at 16.3% CAGR during 2007-11, with growth being particularly strong in the last two years. However, since the beginning of 2011-12, the industry has been witnessing a slowdown in volume growth marred by rising inflation, hardening interest rates and increasing fuel prices that have combined to dent consumer sentiment. Even the festive season failed to stoke domestic demand despite new model launches, aggressive discounts and promotional schemes offered by OEMs. Apart from macro-economic headwinds dampening demand, events such as production disruption at India¶s largest PV OEM, Maruti Suzuki, the tsunami in Japan and the recent floods in Thailand also created supply chain stresses, further aggravating the weak performance of the PV industry. The above demand-supply pressures effectively translated into a decline in domestic volumes by 0.5% YoY in 8M FY12. Within segments, the small car and executive car segments have been the worst impacted so far, even as volume growth in the mid-size car segment and utility vehicles (UVs) segment remained in the positive zone. With steady increase in fuel prices since January 2009 (with 63.5% increase till date, diesel is cheaper by ~Rs. 24 per litre, also offers better mileage), there has been a decisive shift in customer preference in favour of diesel-powered cars, reflected in the 24% growth in sales volumes of diesel vehicles in H1 FY12 against a 11% decline in sales volumes of petrol vehicles during the same period. In fact, in segments where both petrol and diesel options are available, diesel vehicle sales far outnumber that of petrol variants by an overwhelming factor of 4:1. However, the preference for diesel vehicles fostered by a distorted fuel price regime could get altered in the event of any increase in excise duty on diesel vehicles that is currently being mulled by the government. The large incumbents in the domestic PV industry derive strength from their low cost manufacturing capabilities, established vendor base and widespread sales and service network; however, their dominance is being challenged by foreign OEMs that have entered the domestic market in the recent past. Overall, ICRA believes that OEMs may continue to face challenging times at least over the short term as sluggish demand on one hand and increasing competition on the other may restrict earnings growth. While we expect PV volumes (domestic + export) to grow at ~11% CAGR over FY12-16, the growth in FY12 may remain tepid at around 3%. Industry leader suffered large market share loss in Q2 FY12 In Q2 FY12, industry volumes were impacted by production disruptions at Maruti Suzuki which led to a sharp decline its domestic market share from 45.9% in FY11 to 37.5% in Q2 FY12. Due to this, a part of the demand shifted to other OEMs like Toyota and Honda which gained market share in the last quarter also facilitated by their new product launches. Also, market participants having diesel models in their portfolio - M&M, Tata Motors and Ford consolidated their market position. Toyota regains market position; Fiat sees significant market share loss In the executive segment, Toyota gained market share in Q2 FY12 post the launch of the new Corolla Altis and resumption of regular supplies from Japan. During Q1FY12, the company¶s production was hampered due to unavailability of imported parts subsequent to the earth quake in Japan. General Motors, with its Chevrolet Cruze sedan remains a close competitor to Toyota in this segment. The segment has also seen new model launches in
the recent past - Renault Fluence and Maruti Suzuki Kizashi being the two. Fiat¶s Linea (that was launched in Jan 2009) and is amongst the lower priced offerings in this segment and has witnessed dwindling sales over the last few months resulting in sharp market share loss and making the OEM rethink its vehicle distribution network strategy. Mixed trends are emerging across markets; while U.S. and emerging markets are growing; macro-economic headwinds in Europe are weighing on demand European markets continue to witness stagnating demand: The demand for passenger vehicles in European regions continues stagnate amid steadily weakening macro-economic outlook and impact of scrappage schemes which fueled demand post the downturn. With the exception of Germany which has posted a growth of 10% till YTD, most of the major European markets (UK, France, Italy and Spain) continue to witness a declining trend in sales. Unlike US, where OEMs considerably rationalized excess capacity after the financial crisis, European OEMs, particularly in Western Europe face problem of overcapacity. Given the uncertain macro-economic scenario, consumers are likely to postpone their purchases for some time to come, resulting in a weak demand in the near term. In Q2 FY12, the revenues of Maruti Suzuki India Limited (MSIL) at 7,831.6 Crore reported a sharp decline of 14.4% YoY, impacted by production disruption at its Manesar plant during the September month, besides sluggish demand conditions that impacted the PV industry as a whole. The demand-supply double whammy translated into a volume decline of 19.6% YoY and 10.4% QoQ for MSIL in Q2 FY12. The decline is expected to be even more precipitous in Q3 FY12 in the wake of the labour strike which continued into October and disrupted production not only at the Manesar plant but also the Gurgaon plant of MSIL. However, we expect MSIL¶s revenue growth to remain healthy over the medium term, even as some market share loss seems inevitable, by virtue of its strong product portfolio, expansive distribution network and economies of scale, apart from favourable fundamental demand drivers for the PV industry. Tata Motors operating income grew by 15.2% during the quarter driven largely by improvement in realization (higher shares of CV and pricing action (1%)) as volumes grew marginally by 1.8% at standalone level. While volumes in the CV segment grew by 17.7% driven by 27.1% growth in LCVs and 5.4% growth in M&HCVs, the passenger vehicles segment posted a stark underperformance to the underlying industry average by reporting a 21.2% drop in volumes. Aggressive launches in the compact and mid-size segment by new entrants and industry-wide factors such as increased interest rates and fuel prices have impacted the company¶s market position. As a result, Tata Motors¶ market share in the passenger car segment dropped to XX% in Q2FY12, while in the UV segment it stood at XX% (FY11 ± XX%). During Q2 FY12, Mahindra & Mahindra (M&M) reported a consolidated operating income of Rs. 15,250.4 crore (up 62.1% on YoY basis) and a PAT of Rs. 682.0 crore (a decline of 2.7%). While the revenue growth has been driven by the Automotive and FES segments, the margin has been largely impacted on account of input cost pressures and lower VAT incentives (though the management has not quantified the loss of benefits on VAT). The weak performance of SYMC has further added to the woes.
Carmakers plan niche drive to expand stable
Chennai: With more than 60 new models and upgrades lined up for debut, Auto Expo 2012 in Delhi will pack in a lot of launch excitement. But unlike earlier years, this time car companies are looking to expand their stable by creating niche products. Across the price spectrum, from Maruti to Mercedes Benz, the idea is to try out something new, beyond bread and butter segments. Given the slowdown in demand, companies feel it¶s time to explore new segments which will be less price-sensitive and create a buzz. Known for its formidable footprint in the small car market, Maruti Suzuki is showcasing two new products this time round ² the Ertiga MUV and a concept compact SUV. Neither falls in the small car category. ³This is our way of expanding our portfolio and branching out into newer segments,´ says Mayank Pareek, managing executive officer (marketing & sales), Maruti Suzuki. ³Right now the Ertiga segment is virtually non-existent in India. So, we want to create this niche and ride the first mover advantage. That¶s the job of the market leader ² identify niches and cater to them ahead of the pack.´ MNC biggie Volkswagen, also known for its small car focus, will showcase itsiconic Beetle, a premium hatch whose Rs 20 lakh-plus price tag means it will never be a volume spinner. But as brand builder it pulls a mean punch. The company isn¶t showing its UP small car, already showcased at the Frankfurt Motor Show and has plans for an India launch. ³Our brand is still at a nascent stage of awareness so we wanted a brand building tool for the Auto Expo. The Beetle is our most iconic product and the best vehicle to create brand awareness,´ says Neeraj Garg, member board & director, Volkswagen Passenger Cars, Volkswagen Group Sales India. The company says there¶s no decision on launching the Beetle in India just yet. In the premium segment too the buzzword is niches with a difference. Both Mercedes Benz and BMW are showcasing products that are miles away from their core market of luxury saloons. While BMW is launching the iconic Mini Cooper premium hatchback in India, arch rival Mercedes Benz will showcase its B-Class premium hatchback, which is due for debut in India by 2012 winter. The Mercedes roster will also include models like the SLS AMG Roadster, the SLS GT3 and the DTM car along with a range of performance cars from the AMG stable. Like Maruti, Ford too is expected to showcase a compact SUV concept though company officials are tightlipped about the details. The company has only announced that it will showcase an ³all new vehicle planned for introduction in India and other global markets in the near future´. M&M will highlight its Ssangyong range including Rexton and Korando E. ³The
idea is to create some excitement during the expo but not everything that we showcase will come to India immediately,´ says Pawan Goenka, president-auto and farm equipment division, M&M.
Toyota recalls 41k units of Etios, Liva
TIMES NEWS NETWORK
New Delhi: Recall scare came to haunt Toyota in India as the company called back 41,000 units of its sedan Etios and small car Liva to replace faulty inlet pipe to the fuel tank. The two models, the company¶s bestsellers in the Indian market, had gone on sale this year and the problem was noticed both at dealership level and also by customers, Sandeep Singh, deputy MD (sales & marketing) of Toyota Kirloskar Motors, said. He added that while the problem did not pose any immediate threat, the company had decided to go for replacement on all cars sold as a precautionary measure. ³The whole process will take up to 45 minutes and it will be carried out free of cost. Dealers are in the process of contacting customers, asking them to get their cars inspected.´ While the Etios sedan had gone on sale in January this year, the Liva hatchback hit the market in June. The company sells the model in both gasolene and diesel versions and they have been behind Toyota¶s 89% sales surge in the Indian market this fiscal (92,546 vehicles sold between April-November 2011).
With this recall, Toyota joins companies like Honda, Maruti Suzuki and Skoda in India, all of who had to call back vehicles to fix faulty parts. Maruti had in April recalled 13,157 units of diesel cars manufactured between November 13 and December 4 in 2010, to inspect a defective part. That followed a similar move of February last year when it recalled more than 100,000 units of its small car A-Star to replace a defective part in the fuel tank. Honda Siel has had three recalls in India in the recent past, the latest being in September this year to replace power window switches on 72,115 City sedans manufactured between 2005 and 2007. Toyota is not new to recalls which came in as a crisis for the company in 2010 when it was hit by a global recall, though cars sold in India were not affected. Recalls are not very prevalent in India and companies are often reluctant to announce them as they fear a negative fallout on their branding. Lack of an official recall policy in India makes many of them go quiet on the matter and report it only when it affects the global markets, many of whom mandatorily seek announcement of a recall in case of a defect that is generic in nature.
NEW COVER
IRDA scraps motor pool as losses mount
Claims Of Uninsurable Vehicles Will Be Shared
TIMES NEWS NETWORK
Mumbai: In a move that will force insurance companies to be more efficient in managing claims by motor accident victims, the regulator has ordered dismantling of the motor insurance pool a mechanism where motor liability claims were shared by all non-life insurers irrespective of whether they had any motor business or not. This will be replaced by a pool of declined proposals where only claims from vehicles considered uninsurable will be shared. The move is a negative for public sector companies which have the highest motor third-party claims and a positive for private companies which now do not have to fully share PSU losses. According to IRDA, the current structure of the pool is severely affecting the viability of the non-life industry due to alarming capital depletion. The regulator has said that there was huge inefficiency in claim settlement with claim ratios differing by as much as 100% between companies. Under the earlier pool structure where the total loss on motor-third party insurance was distributed among all companies in proportion to their overall market share. From April 2012, this will be replaced with a structure where every company will issue policies to everyone who approaches it. If any proposal does not fall within a companies underwriting parameter, it is free to transfer the premium and the risk to a declined risk pool where the loss will be shared based on market share of motor business and overall business. There will not be any impact on pricing as motor third-party premium will be calculated based on a formula which takes into account claims. But since the new structure will improve efficiency in claims management policyholders can look forward to better rates when claims come down, said Bhargav Dasgupta, MD, ICICI Lombard General Insurance. The insurance regulator had introduced a motor thirdparty insurance pool in 2007 after PSU insurers complained that private companies were not avoiding proposals for third-party insurance cover from commercial vehicles as this business was loss making. While the business was unprofitable insurers, were required to provide the cover as it was mandatory for vehicle owners to buy the cover.
Irda Finally Junks Third-Party Motor Cover Pool
New, smaller pool to help private insurers reduce losses, make state-run companies more efficient
OUR BUREAU MUMBAI
The Insurance Regulatory and Development Authority has dismantled the four-yearold thirdparty motor insurance pool blamed by private insurers for their losses, but is replacing it with a smaller one that may force state-run companies to improve efficiency. The new plan provides an option to insurance companies to choose the liabilities they would bear totally, meaning they would pay up 100% of the claims. Where they see high claims, such as on trucks, they can dip into the pool, where every insurer contributes depending on its market share. The existing Indian third-party motor pool shall be dismantled, the regulator said in a note on its website. The third-party pool, introduced in 2007, has been criticised by private insurers saying they are forced to bear the burden due to the sloppy due diligence done by public sector general insurers. But the state-run insurers say their presence across the nation, even in smaller towns unlike private ones that cherry-pick customers in cities, make them vulnerable to disproportionate claims. Earlier, everything was going to the pool, said Gaurav D Garg, managing director and CEO, Tata AIG General Insurance. It had become the biggest insurance company in itself. Efficiency of managing claims was low. Now, overall size will reduce and become equitable. The latest move by Irda will enable insurers to decide on whether they want to write the thirdparty liabilities in a policy involving a Maruti car, or a Mercedes Benz, or a Tata truck. They could choose to pay up claims in cities where accidents may be less frequent, while transferring to pool those coming from hinterland, where there are more accidents. This, in insurance parlance, is called declining risk pool . New India Assurance had plunged into losses last year for the first time in 91 years due to third-party motor pool. The current pool is likely to see around 4 lakh claims this year, and is forecast to get a contribution of around . 5,400 crore. New Pool Structure Big Change But the payout may be around . 8,000 crore, inflicting losses on every insurer. Public
sector general insurers have lost more than . 25,000 crore in the past 20-30 years. The new pool structure is an important first step towards addressing the issues around commercial vehicle third-party insurance and reforming them, said Ritesh Kumar, chief executive at HDFC ERGO. The structure is simple to implement and ensures there are no supply-side constraints on availability of insurance covers. The declined pool would be extinguished at the end of every underwriting year by transferring the risks at par to members who have not fulfilled their mandatory obligations. Every insurer will have to underwrite a minimum percentage of standalone commercial vehicle motor third-party insurance, the regulator mandates. This would be in proportion to the sum of 50% of the company s percentage share in total business, and 50% of the total motor premium of the industry in a current year.
Recalling the Product Recalls
Toyota has just recalled 41,000 of its Etios cars in India to replace a faulty filler hose pipe. In September, Honda issued a recall for 72,000 cars of its City model to replace defective power window switches. Here are some of the big product recalls in the last few years in India, and globally
ICRA has come out with its report on Indian passenger vehicle (PV) industry. According
to the research firm the cars segment de-grew by 3.5%, during 8m FY12, while Utility Vehicles (UVs) and Multi Purpose Vehicles (MPVs) reported a growth of 11.1% and 10.3%, respectively The Indian passenger vehicle (PV) industry has experienced a period of strong volume growth in the last five years riding on strong economic growth, rising disposable incomes, favourable demographics and relatively low penetration levels. Frequent introduction of new models by Original Equipment Manufacturers (OEMs), incumbents as well as new entrants, and adequate financing availability also contributed to the growth momentum. As demand
and supply tangoed, the industry¶s volumes grew at 16.3% CAGR during 2007-11, with growth being particularly strong in the last two years. However, since the beginning of 2011-12, the industry has been witnessing a slowdown in volume growth marred by rising inflation, hardening interest rates and increasing fuel prices that have combined to dent consumer sentiment. Even the festive season failed to stoke domestic demand despite new model launches, aggressive discounts and promotional schemes offered by OEMs. Apart from macro-economic headwinds dampening demand, events such as production disruption at India¶s largest PV OEM, Maruti Suzuki, the tsunami in Japan and the recent floods in Thailand also created supply chain stresses, further aggravating the weak performance of the PV industry. The above demand-supply pressures effectively translated into a decline in domestic volumes by 0.5% YoY in 8M FY12. Within segments, the small car and executive car segments have been the worst impacted so far, even as volume growth in the mid-size car segment and utility vehicles (UVs) segment remained in the positive zone. With steady increase in fuel prices since January 2009 (with 63.5% increase till date, diesel is cheaper by ~Rs. 24 per litre, also offers better mileage), there has been a decisive shift in customer preference in favour of diesel-powered cars, reflected in the 24% growth in sales volumes of diesel vehicles in H1 FY12 against a 11% decline in sales volumes of petrol vehicles during the same period. In fact, in segments where both petrol and diesel options are available, diesel vehicle sales far outnumber that of petrol variants by an overwhelming factor of 4:1. However, the preference for diesel vehicles fostered by a distorted fuel price regime could get altered in the event of any increase in excise duty on diesel vehicles that is currently being mulled by the government. The large incumbents in the domestic PV industry derive strength from their low cost manufacturing capabilities, established vendor base and widespread sales and service network; however, their dominance is being challenged by foreign OEMs that have entered the domestic market in the recent past. Overall, ICRA believes that OEMs may continue to face challenging times at least over the short term as sluggish demand on one hand and increasing competition on the other may restrict earnings growth. While we expect PV volumes (domestic + export) to grow at ~11% CAGR over FY12-16, the growth in FY12 may remain tepid at around 3%. Industry leader suffered large market share loss in Q2 FY12 In Q2 FY12, industry volumes were impacted by production disruptions at Maruti Suzuki which led to a sharp decline its domestic market share from 45.9% in FY11 to 37.5% in Q2 FY12. Due to this, a part of the demand shifted to other OEMs like Toyota and Honda which gained market share in the last quarter also facilitated by their new product launches. Also, market participants having diesel models in their portfolio - M&M, Tata Motors and Ford consolidated their market position. Toyota regains market position; Fiat sees significant market share loss In the executive segment, Toyota gained market share in Q2 FY12 post the launch of the new Corolla Altis and resumption of regular supplies from Japan. During Q1FY12, the company¶s production was hampered due to unavailability of imported parts subsequent to the earth quake in Japan. General Motors, with its Chevrolet Cruze sedan remains a close competitor to Toyota in this segment. The segment has also seen new model launches in
the recent past - Renault Fluence and Maruti Suzuki Kizashi being the two. Fiat¶s Linea (that was launched in Jan 2009) and is amongst the lower priced offerings in this segment and has witnessed dwindling sales over the last few months resulting in sharp market share loss and making the OEM rethink its vehicle distribution network strategy. Mixed trends are emerging across markets; while U.S. and emerging markets are growing; macro-economic headwinds in Europe are weighing on demand European markets continue to witness stagnating demand: The demand for passenger vehicles in European regions continues stagnate amid steadily weakening macro-economic outlook and impact of scrappage schemes which fueled demand post the downturn. With the exception of Germany which has posted a growth of 10% till YTD, most of the major European markets (UK, France, Italy and Spain) continue to witness a declining trend in sales. Unlike US, where OEMs considerably rationalized excess capacity after the financial crisis, European OEMs, particularly in Western Europe face problem of overcapacity. Given the uncertain macro-economic scenario, consumers are likely to postpone their purchases for some time to come, resulting in a weak demand in the near term. In Q2 FY12, the revenues of Maruti Suzuki India Limited (MSIL) at 7,831.6 Crore reported a sharp decline of 14.4% YoY, impacted by production disruption at its Manesar plant during the September month, besides sluggish demand conditions that impacted the PV industry as a whole. The demand-supply double whammy translated into a volume decline of 19.6% YoY and 10.4% QoQ for MSIL in Q2 FY12. The decline is expected to be even more precipitous in Q3 FY12 in the wake of the labour strike which continued into October and disrupted production not only at the Manesar plant but also the Gurgaon plant of MSIL. However, we expect MSIL¶s revenue growth to remain healthy over the medium term, even as some market share loss seems inevitable, by virtue of its strong product portfolio, expansive distribution network and economies of scale, apart from favourable fundamental demand drivers for the PV industry. Tata Motors operating income grew by 15.2% during the quarter driven largely by improvement in realization (higher shares of CV and pricing action (1%)) as volumes grew marginally by 1.8% at standalone level. While volumes in the CV segment grew by 17.7% driven by 27.1% growth in LCVs and 5.4% growth in M&HCVs, the passenger vehicles segment posted a stark underperformance to the underlying industry average by reporting a 21.2% drop in volumes. Aggressive launches in the compact and mid-size segment by new entrants and industry-wide factors such as increased interest rates and fuel prices have impacted the company¶s market position. As a result, Tata Motors¶ market share in the passenger car segment dropped to XX% in Q2FY12, while in the UV segment it stood at XX% (FY11 ± XX%). During Q2 FY12, Mahindra & Mahindra (M&M) reported a consolidated operating income of Rs. 15,250.4 crore (up 62.1% on YoY basis) and a PAT of Rs. 682.0 crore (a decline of 2.7%). While the revenue growth has been driven by the Automotive and FES segments, the margin has been largely impacted on account of input cost pressures and lower VAT incentives (though the management has not quantified the loss of benefits on VAT). The weak performance of SYMC has further added to the woes.
