Can The Automotive Sector Sustain the ‘Growth Story’?
Globally, markets have been depressed. Prices are rising and disposable incomes are drying up. At such times, consumers understandably put-off or postpone high-ticket purchases like consumer durables, houses and cars.
In India, car sales have remained flat over the past 12 months. While some segments, notably the small car segment, have witnessed falling sales, others have seen growth, particularly the UV / SUV market and the luxury segment. This trend serves as an indicator of the economic climate within India; the rich, who’ve largely remained isolated from price rise, are buying more luxury vehicles, while the increasingly aspirational and affluent middle class is trading up for bigger vehicles, sometimes at the expense of the hatchback segment.
Be that as it may, there are varying estimates as to what size the India passenger car market would be in 2020, from conservative estimates pegging the figure at 4.6 million units, to a highly optimistic 9.1 million units, according to a recent report by Frost & Sullivan. Ask me, and I’d say split the difference, which works out to 6.85 million units annually.
However, (don’t you just love this word?) the bigger question car-makers are asking themselves is whether growth is sustainable. A quick calculation reveals that for the Indian passenger car market to grow from 2.6 million units presently to 6.85 million units in 2020, it would have to grow at a compounded annual growth rate of almost 15 percent. Feasible? If you take F&S’s estimates, then the CAGR is even higher, at an astounding 19.6 percent!
In other news, European car sales are in a steady glide back to terra firma, with some analysts predicting another year of contraction. The EU and UK have together witnessed a 10 percent reduction in new car sales consistently over the last 2 years, and the same is expected this year as well.
The situation isn’t hunky dory in Japan either, once the world’s second-largest new car market, which has also been witnessing “de-growth” as some pundits put it.
Car sales in China too are cooling off, and it is unlikely that the Chinese car market will continue to zoom at the same heady levels as the past decade, and indeed, sales are likely to plateau in the next couple of years.
That still leaves markets like Brazil, Russia and South Africa, which are growing too, but will they manage to make up for the rest of the world?
Crystal ball gazing aside, common sense indicators are that one cannot grow beyond a point. All living creatures grow to a certain physical size and then remain more or less constant for the larger part of their lives (unless your name is Akash Ambani). Beyond a point, the automotive fraternity will have to come to terms with the fact that the motorised carriage or car as we know it will eventually become redundant, replaced by other modes of transport, personalised or mass. So, car companies will have to evolve and innovate to survive, which they doubtless will.
Either way, a state of equilibrium will be inevitable, requiring mobility companies as they like to be called, to find other ways of remaining relevant and profitable.