Auto sales momentum in early 2009 not a sign of revival

 

Sector not out of the woods yet: Pawan Goenka.

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"The negatives of October-December could have gone but whether the positives have already come in will only be known in the second quarter of this fiscal." – Dr Pawan Goenka

 

 

Auto sales have been brisk over the last three-four months but Dr Pawan Goenka, President of Mahindra & Mahindra's Automotive Sector, is not convinced that the turnaround has happened yet. He also reiterates that a lot more work needs to be done to revive the sector.

"All of us in the auto industry are sitting on the edge where we are closer to the start of the slope rather than halfway to the peak. A lot of effort is still required to go uphill because the way downhill is much faster," he told Business Line.

And even as the new government gets ready to take charge, Dr Goenka cautioned that it was important that excise duty and interest rates did not move upwards while keeping an eye on the overall liquidity position. "A slight improvement in any of these three areas is welcome but any move to reverse the direction could result in a collapse," he said. According to him, the biggest fear was this general feel-good air all around that the auto industry had turned the corner.

"If there is no additional help and if some of the recent incentives are removed, things can get really bad. At worst, we must maintain what we have and at best, we must get something more so that we move upwards," Dr Goenka said.

Demand burst

The reason for this outlook stems from the fact that sales during the last three months have been a result of the stimulus package, which included excise duty cuts, improvement in liquidity and other initiatives to spur demand.

"One must bear in mind that people did not buy in October, November and December last year. When things improved a bit (thanks to the incentives), there was a lot of movement from this category who had postponed purchasing vehicles," he said.

In a nutshell, the momentum in the early part of 2009 was the pent up demand of October-December coupled with new customers coming in during February-April.

"The negatives of October-December could have gone but whether the positives have already come in will only be known in the second quarter of this fiscal. If we see a growth of 5-8 per cent in Q2, then one can say that the turnaround is happening and that industry is on the rebound," he said.

Sustain Momentum

Apart from keeping its fingers crossed that the new Government will not undo any of the recent initiatives, the auto sector is also hoping that there is greater parity in excise duty for small and mid-size cars, now at 8 and 20 per cent respectively. Similarly, companies say that it is high time that the additional excise levy of Rs 15,000-20,000 on vehicles of 1500cc-2000cc is removed.

According to Dr Goenka, there was yet another risk from commodity prices despite the fact that they were a lot more stable now. "The industry suffered so much last year that nobody has the ability to take the punch of another price spiral. Should it happen again, it will have to be passed on to the end-user," he said.

In his view, it was important that industry and the Centre worked with the "same kind of intensity" seen during the last few months when the stimulus packages were prepared.

"In my view, this was a very good example of collaboration between the two to overcome the crisis. Together, we have created an environment for customers to buy products and the momentum must be sustained," Dr Goenka added.