Tepid sales, labour violence mark a rough year for auto sector

After witnessing the steepest monthly decline in nearly 11 years in October 2011, industry began 2012 with the Auto Expo in the National Capital, hoping for a brighter future.

Last Updated: Dec 27, 2012, 11:52 AM IST

New Delhi: Beginning with a bang amid all the glitz and glamour of the biennial Auto Expo, the year will be ending with a whimper for the automobile industry as sales dwindle, and the worst-ever industrial violence at Maruti Suzuki's Manesar plant leaves a big scar.

New model launches such has Mini from BMW, Ertiga from Maruti Suzuki, Duster from Renault, Quanto from Mahindra & Mahindra and Sail U-VA from General Motors kept the consumers interested in a tough market. Yet, recalls by Ford, Toyota and Honda of their products added to the woes of the industry.

After witnessing the steepest monthly decline in nearly 11 years in October 2011, industry began 2012 with the Auto Expo in the National Capital, hoping for a brighter future.

Bollywood stars, including Amitabh Bachchan, Katrina Kaif, John Abraham and Ranbir Kapoor endorsed various brands, lent their star power to the show and attracted big crowds.

Ironically, that turned into a problem. Many business leaders, including Anand Mahindra, criticised poor crowd management, saying the week-long event was a "serious business" and not just a "tamasha".

The organisers also restricted entry to one lakh daily, including 30,000 people from the exhibitors, a move that cost the expo its tag of being the world's second-largest auto show in terms of footfalls. About 7,00,000 visitors visited the show, compared to over 2 million visitors in 2010 -- which according to the organisers was the world's second-largest after the Shanghai auto show.

As many as 1,500 exhibitors and 50 global brands from 24 countries participated and the expo witnessed 58 new launches and unveiling of nine concept and 12 green vehicles. However, due to limited space at Pragati Maidan, over 100 exhibitors from across the globe were denied participation. Later in the year, the organisers decided to shift the show to Greater Noida from the next Auto Expo in 2014.

As the year progressed, excitement and optimism turned into gloom as sales fell in almost all segments forcing Society of Indian Automobile Manufacturers (SIAM) to revise growth projection for the fiscal downward twice.

In October, SIAM lowered car sales growth forecast to just 1-3 percent for the fiscal, from the 9-11 percent announced in July. Three months earlier, it had pegged car sales growth rate at 10-12 percent. The industry body said with a subdued growth in sales, the forecast may be revised a third time next month.

So far this fiscal, 12,40,688 cars have been sold - up just 1.28 percent from the same period last year. Even the festive season failed to push sales with passenger car sales declining by 8.25 percent in November.
Sales were hurt badly by rising fuel prices, high interest rates and overall low consumer sentiment. A big price difference between petrol and diesel added to the woes of those manufacturers which predominantly make petrol vehicles as demand for diesel cars soared.

This led to some NGOs and a section of the government seeking additional duties on diesel vehicles to discourage the subsidised fuel being used by the "affluent".

With stiff opposition from SIAM and manufacturers, the government did not hike levies on diesel vehicles but speculation is rife that in the Budget for 2013-14, it may impose some additional duties on diesel vehicles.

Uncertainty of auto fuel policy became an issue for the industry, which demanded a long-term pricing roadmap of petrol and diesel so that they can plan their investments accordingly. On the other hand, Maharashtra government's VAT policy led to German auto giant Volkswagen putting on hold its plan to invest Rs 2,000 crore in India till around 2015.

Besides policy related issues, labour unrest hit Indian automobile sector hard during the year.

Maruti Suzuki India (MSI), the country's largest car maker, witnessed the worst ever worker-employee violence in its history on July 18 that left one senior executive dead and nearly 100 others, mostly from management, injured at its new Manesar facility in Haryana.

The incident forced a month-long lockout at the plant and the overall loss of production was about 77,000 units. The plant was reopened in August and the firm sacked over 500 workers alleging their involvement in violence.

The move by the management didn't go down well with many central trade unions, which demanded reinstatement of the sacked workers as the police charge-sheeted only 145 people. However, the MSI management stood by its decision.

The cause of the violence remained unclear with the police's final report saying that it was a result of internal issues contradicted with that of the management's claim that external elements were responsible for the incident.

MSI Chairman R C Bhargava, who even went to the extent that it was a pre-planed conspiracy by extreme left wing activists, reluctantly accepted the police report saying "Everybody has its own conclusion... It is something like an unknown disease by an unknown virus".

MSI rival and the country's second largest car maker Hyundai Motor India also had its share of labour issues at its Chennai plant.

A section of employees under the banner of Hyundai Motor India Employees Union, affiliated to CITU, struck work for 10 days since October 30 pressing for various demands, including reinstatement of dismissed employees.

General Motors launched a hatchback Sail U-VA from its
Chinese partner SAIC's portfolio in India. The company has bet big on this model and hopes to become a significant player in the Indian car market.

Homegrown auto major Mahindra & Mahindra launched its first compact sports utility vehicle Quanto. The model is based on its existing Xylo's platform and has been able to register good bookings.

Rival Renault also introduced a compact SUV, Duster, in the Indian market. Despite limited presence in the country due to shortage of showrooms, the company is still witnessing robust demand for the model.

In the 2-wheeler space, major news and announcement kept coming from the Munjals-led Hero MotoCorp. Since it announced a new identity in August last year after parting ways with Japan's Honda Motor Co, the firm has formed three partnership with foreign entities. It is also considering picking up equity stake in these partners.

The 2-wheeler major has roped in Italian design firm Engines Engineering to partner with it in bringing next- generation product line-up. Under the partnership, the Bologna -based firm will impart technological know-how in terms of designing for future products of the Indian entity.

Earlier this year, the company entered into technology sourcing pact with US-based Erik Buell Racing as it looked to strengthen presence in the high-end bike segment. Later, it also tied up with Austrian engine developer AVL to enhance its capabilities for the future.

The National Capital-based auto major also said it will start assembly plants in Kenya and Nigeria as it looks to expand footprint in the global markets.

While the auto industry will want to zip past 2012, the year 2013 doesn't look like a smooth ride either, as sales are expected to remain subdued in a gloomy macro-economic environment.