Motown discount season to persist

Rohit Joshi and Siddharth Tak/Zee Research Group

With sales volumes continually on the decline the passenger car discount season is likely to get an extension though the discount levels are unlikely to see any further escalation. This might thus be the best time to drive home your beauty. But if your choice is not the most popular model you might be able to drive a harder bargain.

While auto sales have been sluggish for some time now, last month turned out to be pretty bad for some players already under pressure: car sales volumes at Tata Motors declined by massive 72.5 per cent to 7769 units when compared to corresponding period last year.

Not only Tata Motors but other car manufacturers posted sluggish domestic sales volume in the period under review. Hyundai, Ford and GM India reported a decline of 8 per cent, 44 per cent, and 20 per cent respectively in domestic sales volumes on yearly basis.

Even the domestic volumes of market leader, Maruti Suzuki declined 9 percent on yearly basis. This clearly reflects weak buyer sentiment owing to increased cost of ownership and poor economic growth.

This has set the industry to go back to the consumer with price cuts and hefty discounts. Tata Motors announced earlier this week to slash prices of passenger cars (Indica and Indigo) in the range of Rs 29,000–50,000. Commenting on this price cut, Tata Motors spokeswoman, said, “The move to slash the prices of its vehicles is to make Tata vehicles more attractive to customers. The revised prices are effective from March 1, 2013.”

Explaining the rationale behind the price cut, Subrata Ray, senior vice-president, ICRA, asserted, “The sharp price cuts announced by Tata Motors on Indica and Indigo Manza range are in response to current weak market conditions. While Tata Indica with a relatively stronger preference from the taxi segment has been facing increased competition from other models, particularly Toyota Etios Liva and Swift Dzire, the launch of several new models (i.e. Nissan Sunny, Skoda Rapid, Renault Scala) and refreshed variants on some of the existing models in the mid-size segment over the last 12-18 months have impacted and eaten market share of Tata Manza.”

The industry is well aware of the consequences of declining sales on the balance sheet. Sugato Sen, deputy director general, SIAM (Society of Indian Automobile Manufacturers), was candid enough to admit to the grim reality: “Vehicles are not selling that’s why car manufacturers are going for price cuts,” he lamented.

Price cuts apart, in order to attract potential customers, auto companies are offering various sops and freebies to them. Companies are offering goodies in the form of cash discounts, free insurance, loyalty exchange bonus and accessories. While Hyundai’s i10 comes with a whopping Rs 42,500 benefits, German carmaker Volkswagen’s Indian subsidiary has an exchange offer that allows a customer an option to own a Vento Sedan by paying Rs 1 and rest in attractive equated monthly installment (EMI) schemes.

In harmony with the above facts, Ray at ICRA, said, “With most of the factors impacting the demand for passenger cars showing no signs of easing, we expect that Original Equipment Manufacturers (OEMs) will continue to offer discounts (in form of free insurance, exchange bonuses, freebies etc) to lure demand. However, as weak demand environment, prevailing discount levels and rising cost pressures continue to exhibit pressure on the profitability indicators of OEMs, further increase in discount levels is unlikely.”