2016 proves to be an 'eventful' ride for Indian auto industry

Pic for representational purpose

New Delhi: The Indian auto industry is yet again looking forward to a new year with renewed optimism amid challenges of new regulations after a bumpy ride in 2016.

Despite beginning the year with a bang -- with 108 product launches and unveilings at the biennial Auto Expo in February -- the industry found that its wish for a third consecutive year of growth was not going to be a cruise.

Far from a smooth drive, 2016 turned out to be a journey with major speed breakers and blind corners as the industry became the favourite whipping boy in the fight against pollution.

It bore the brunt of the ban on diesel cars and SUVs with big engines of 2,000 cc and above in Delhi-NCR for eight months, and according to SIAM, this resulted in a loss of Rs 4,000 crore for the industry.

Besides, the industry had to start getting ready for leapfrogging to BS VI emission norms from 2020 from the current BS IV, three years earlier than they had been envisaged.

Not just that, come October 2017, all the new car models will have to pass a mandatory crash test as the government has decided to introduce stringent safety norms. For upgrades of the existing models, the deadline will be from October 2018.

"A lot is expected to happen in 2017 on the regulatory front and with introduction of GST... With so many policy-level developments all through the year, the auto industry is surely expected to face a challenging, yet interesting year," Society of Indian Automobile Manufacturers President Vinod K Dasari told PTI.

While he refrained from commenting on the outlook for 2017 stating that "the current situation is a bit difficult" for a forecast, Dasari said: "...With demonetisation, the economy currently is facing a temporary disruption in domestic demand. The situation is likely to continue till March 2017, post which the economy should bounce back to normal."

In 2016, the auto industry saw sales counter ticking for the better part of the year till the sudden announcement of demonetisation that brought sales to a screeching halt.

The blow in November immediately followed a bountiful festive season and made showrooms wear a deserted look in the wake of the recall of old Rs 500 and Rs 1,000 notes.

"The industry witnessed a degrowth of 5.5 per cent in wholesale sales in November 2016. The drop in retail sales was worse while the footfall at showrooms has dropped dramatically," Dasari said, adding that November 2016 was a difficult month for the whole economy and the auto industry due to demonetisation.

Putting things into perspective, he said total automobile domestic sales in January-November 2016 grew by 11.4 per cent compared with the year-ago period. In January?October 2016, the industry had grown by 13.1 per cent against the corresponding period a year earlier.

Dasari, however, said: "This situation should be looked against the background of good monsoon and expectations of revival of the rural market after three years. The optimistic outlook continued despite the infrastructure cess introduced on passenger vehicles in the Union Budget by the Finance Minister."

He termed the year 2016 as "quite eventful". The year saw the government mooting a vehicle scrappage policy even as the Delhi government ordered removal of diesel vehicles in Delhi/NCR that are older than 15 years.

The proposed 'Voluntary Vehicle Fleet Modernisation Plan (V-VMP)' provides incentives worth 8-12 per cent of the cost of a new vehicle in lieu of surrendering the old ones and looks to get nearly 28 million over-11-year-old polluting vehicles off the road.

The National Green Tribunal (NGT) was also at the forefront of the fight against pollution, ordering around 1.9 lakh diesel vehicles that are more than 15 years old to be taken off. It had earlier ordered plying of diesel vehicles that are older than 10 years.

A development that disappointed the auto industry was the reduced incentive from the government on research and development.

"A huge sum of R&D expenses has been earmarked for development of technology for BS VI. However, in the Union Budget 2016-17, the benefit available on weighted deduction on R&D expenses was reduced from 200 per cent to 150 per cent from the current financial year and the entire benefit will be eliminated from 2020. This was a disappointing announcement for the industry," Dasari noted.

With an aim to make eco-friendly vehicles, he said SIAM members have been working on developing hybrid and electric vehicles in all segments two wheelers, cars and even buses.

"Once the market starts accepting these vehicles in large numbers and economies of scale reached, this effort should become self-sustaining and should have huge potential in not only domestic market but also exports," Dasari added.

Optimistic of the growth story of Indian automobile industry in the long term, he said: "The strong economic foundation and the current steps to combat black money would make the economy stronger and it will bounce back and so would be demand for vehicles."

Expressing similar views, Price Waterhouse Partner and auto expert Abdul Majeed said while in short to medium term the growth is not going to be consistent, the long-term perspective for the automotive industry is quite bright.

"Going forward, the government will push its agenda in bringing stricter emission, safety norms etc. The auto industry will have to cope with these changes. Hopefully, more incentives will be offered by the government on environment friendly vehicles," he said.

One of the repercussions will be that vehicles will become costlier due to extra inputs required to make them compliant with the rules.

"Industry is in no position to absorb extra cost," Maruti Suzuki India (MSI) Chairman R C Bhargava said.

Even before the new norms kick in, many automobile manufacturers, including Hyundai, Toyota, Renault, Nissan, Tata Motors and Mercedes-Benz, have already announced that they would hike prices from January to offset rising input costs and impact of adverse foreign exchange fluctuations.

The temporary blips notwithstanding, Bhargava said that for the country's largest carmaker MSI, the expectation is for a double-digit growth in 2017.

"We expect to achieve the double-digit growth that we set for the year. Next year, if there are no production constraints, we would like to achieve a double-digit growth," he said.

According to Honda Cars India Ltd (HCIL) Senior Vice-President Jnaneshwar Sen, demonetisation has changed a bit the situation for the auto industry which was showing some "decent growth during the beginning of the year".

"We will have to see how good the recovery would be in December and coming few months. There has been postponement of purchases. Bookings are not happening, but enquiries are going on. So, one thing is interest is there. We expect people to come back to market as general sentiment improves," Sen said.

Like the previous ones, the year also saw major carmakers Maruti Suzuki India, Hyundai, Honda and others recall some of their models for fixing faults. Over two million vehicles have been recalled by various automakers in India ever since the auto industry body SIAM started voluntary vehicle recalls on safety-related issues in July 2012.