'Midsize Sedans Could Outsell Entry Level Sedans In India By 2022'
IHS Markit provides information and analysis to support the decision-making process of businesses and governments in industries such as aerospace, defence and security; automotive; chemical; energy; maritime and trade; and technology. In an exclusive interview with BW Businessworld's Avishek Banerjee, Puneet Gupta, South Asia Manager, Vehicle Sales Forecast, IHS Markit discussed how entry level sedans replaced by midsize sedans in the next five years if the government goes ahead with a uniform tax rate on all segments of passenger vehicles.
As the GST rates got implemented recently, what kind of implications will it have on the automotive industry?
Over the last few years, there has been a lot of jerks like demonetization, diesel car ban, etc. As things are getting streamlined, there is a pent-up demand in the market. When the GST effects are over and things smoothed out, OEMs and their suppliers will relatively have a better profitability. Also with the elections coming in, the government would be spending good money and there could be farm loan waivers. There will be robust growth right from A-segment models right up to D and E segment models. That is something everybody is looking forward to.
The Indian PV market has just crossed the 3 million sales mark. Going forward, what will be India's ranking in the global pecking order?
Currently, India is the fifth largest PV market in the world and would be the third largest after the US and China by 2022. Undoubtedly, our market is close to touching the peaks at 6-6.5 million units in the next five to six years. The total numbers include cars of all shapes and sizes and LCVs below 6 tonnes and preclude two-wheelers, three-wheelers, M&HCVs. We have taken into consideration all the challenges the industry will face like the hike in prices due to BS-VI emission norms and safety norms coming into force. There will definitely be a small dip in sales by the turn of the next decade due to some changes in market dynamics. Keeping all the factors in mind, we are hoping for an average 7-8% sales growth over the next few years.
Do you think Maruti Suzuki will be able to hold onto its market share in the domestic PV market or will there be a major shake-up happening in the future?
The domestic market will get very complex as there will be an influx of new players like Kia, Daihatsu, SAIC, Great Wall, PSA Peugeot Citroen, among others in the country. Therefore, there will be a drop in the market share of market leaders (like Maruti). However, there will be a continuous growth in its (Maruti's) volumes. If you see the last decade, Maruti was able to regain its market share from 39% earlier to around 44% later because of their aggressive strategies. So if they have better strategies, technologies and products, the company may be able to hold on to its market share. But again, it won't be that easy to sustain the levels they have attained today.
While on one hand, some players like GM, Fiat, etc., are pulling out from the domestic market, on the other hand, new entrants like Peugeot and Kia are coming in. So does the market still look promising for global players?
Yes, you are right by stating that players like GM, Fiat etc., which are global leaders are still struggling in the Indian market. Once you enter the Indian market, you need to think like an Indian customer and get into their shoes to understand their needs. Maruti Suzuki, as a company, has been able to do it very rightly and have managed to move up the ladder. So I think that is a great learning for (new) global players to have an India-centric approach to taste success here. The whole story lies in catering to the needs of the Indian customers. So companies like GM, Fiat, Skoda, etc., have been missing on one of the Big Ps i.e. Product, Price, Positioning and Promotion. For example; Fiat delivered on Product and Price fronts, but could not 'Position' itself well. While on one side, there are definitely immense challenges. On the other side, there are tremendous opportunities in the Indian market. You never know who can come out with flying colours like Renault did with the Kwid (entry-level crossover).
What is the current contribution of the A and B segments to the PV market and going forward, how much will they account for in terms of percentage?
At present, 65-70% of the total sales come from A and B segments. The current taxation policy grants lower duties on vehicles below 4 metres. By 2022, the duty on small cars and large cars could be equalised as the (additional) cesses will be done away with. So if the duty on (Maruti) Dzire and (Honda) City is similar, people will naturally gravitate to the latter. The price differential between both the models, which is huge now, may come down later because of the uniform tax rate on PVs. Subject to the assumption that additional duties on big cars will be done away with, A&B segment models' contribution might drop to 40% and C segment's contribution may double to 30%. There could even be a scenario that entry-level sedans, with a market size of 7 lakh units per annum, will be supplanted by C-segment sedans by 2022. This will happen provided the rate of taxation across various segments (of the PV industry) is the same.
Why have schemes like 'Cash for Clunkers' not found favour in India?
That is a very good question. One of the main reasons is that our government has much bigger priorities like Health and Education to focus on. Having said that, having such a policy may not be a distant dream because of the alarming rise of vehicular pollution. In the next few years, we may have some scrappage schemes which could be on the lines of 'Cash for Clunkers' policy implemented in other countries. Initially, it could be for only commercial vehicles and later for passenger vehicles.
