Auto sector crisis: Amid dip in revenue, govt may not cut tax to spur demand; carmakers should be ready to compromise on price front
Srivastava also pointed out that India's auto sector had seen its best growth in the 7-8 years that Uber and Ola came into existence.
This week, Maruti Suzuki's top official claimed people were still buying cars with an aspirational aspect
The Ola and Uber factor may not be strong to contribute to the current state of slowdown, he said
The industry has been consistently lobbing the ball into the government court, including asking for cuts in taxes like GST
Last week, I wrote asking why India Inc did not see this economic slowdown coming.
I also wondered why the frontline processes and people did not either see or report changes in customer behaviour if so. And if they did then what did HQ do about it? These are self-reflective questions for all of us, not just for me as a financial journalist to pose to companies.
A common reaction to the slowdown in automotive sales has been the Uber + Ola phenomenon — millennials are not buying cars and generally prefer to be asset-light in their existence. There is a lot of anecdotal evidence that supports this theory but unfortunately very little broad-based data.
This week, Maruti Suzuki's executive director — marketing & sales, Shashank Srivastava, responded (finally) claiming India's ownership patterns had not really changed and people were still buying cars with an 'aspirational aspect'. The Ola and Uber factor may not be strong to contribute to the current state of slowdown, he told PTI.
He also pointed out that India's auto sector had seen its best growth in the 7-8 years that Uber and Ola came into existence. "So what happened only during the last few months that the downturn became so severe ?" he asked. He also pointed out that the US market is also growing despite Uber having a strong presence there.
Finally, he said, 46 percent of car buyers in India are first time users.
"It is an aspirational behaviour. People may use public transport like Uber and Ola to go to offices on weekdays, but still they buy a vehicle for the weekend outings with the family,” he said.
Of course, these are questions I am asking as well as are many other people, not because we want to make merry about Maruti's miseries but because our lack of early comprehension is exposing some fundamental chinks.
So, without further ado, here are 20 questions we should be asking for any company, whether in biscuits, shampoo sachets, two-wheelers or cars:
1) How many cars were sold to Uber + Ola in the last 3 years? What is the rate of purchase right now?
2) What approximate numbers do we have for ridership for this period? Contrast this with the number of cars bought and potential ridership that may or may not have migrated? Hint: the figure going around is approximately 2 million rides a day. What is this reflecting? In new cars, growth of new car purchase?
3) What is the precise age profile of first-time car buyers (the 46 percent)? How many of them could have potentially not bought cars? And then what is the overall age profile of car buyers or has been for the last 5 years?
4) What does data show about consumption behaviour (of cars) during the previous slowdowns, is it a lag or a lead effect?
5) What were the three key responses for buyers not completing car purchases in the last 18 months as understood from dealers and their sales staff? Are there seemingly extraneous factors: a) Traffic is unbearable b) I cannot afford or don't have access to proper parking, at home, work or both c) Petrol prices are not going down d) Car prices are too high e) I'd rather save for a world trip for now
6) Now some broader questions: How much of this is new? For instance, if people are quoting high Goods and Services Tax (GST) or high taxes as a deterrent, is this the first time?
7) Could it be possible that carmakers had raised prices too much? Not to blame them but surely it contributed to resistance? How finely are we tuned to market response to pricing, particularly if incomes are not growing? At some price point, the equated monthly installment (EMI) to total cost equation does not look so favourable because the absolute number is so high. This goes to the economist question as well.
Furthermore, what are median salaries in your company like and how have they risen in the last decade? (to be addressed in the next column as well)
8) What percentage of cars were financed by non-banking finance companies (NBFCs) in the last 36 months across India? At what average rates of interest? What are the trends showing?
9) What feedback system does your company have for intelligence that flows in or back from dealer networks? Are all geographies responding similarly? For instance, slower sales in Bangalore?
10) What is the lag between input collected on the ground and it reaching the boardroom in a comprehensive way? To what extent has technology helped or is helping this process and has it been working well so far?
11) How do you make demand projections? Bajaj Auto managing director Rajeev Bajaj alleges there is no science or research - companies add capacity when they are full up.
12) Is the above true? Equally, what methods of projections are you using? Are you tying with Gross Domestic Product (GDP) data for instance? And, like I asked previously, do you have an economist (large companies) onboard or do you work with one/some?
13) Who or who all in your company has the best ability to intuitively spot early trends in the market. Were there previous occasions they have been right about shifting trends or changes and perhaps not listened to? Are you looking for them now?
14) To what extent do people in your organisation understand that we are in a dynamic, post-liberalisation marketplace? That there might be shifts that might cause production contraction? This could be as much because of cheaper imports as a fundamental change in buyer preferences? Either way, a business can fall out of the sky overnight. Remember Jet Airways, although for other reasons as well.
15) What lessons are you taking away from what is happening in the market presently? Remember this is not just cars but two-wheelers, trucks and even biscuits that have slowed down? How are you using this situation to respond? Not to claim that any response can happen overnight.
16) Do we need to develop newer approaches or skills in understanding and predicting customer behaviour? Is it just about delight or does it now go way beyond traditional marketing concepts?
17) How could we use capacity differently? If we do get caught out in a slump? Do or did we have a Plan B? Easy for people like me to say exports but remember this is not a most trade-friendly world out there. On the other hand, there are China-US trade tensions which are an opportunity.
18) How agile are we as a company to respond to a changed market situation? Do we need to build more agile corporations? And how agile is agile? In retrospect do you think you could have been agile, overall, including in terms of contracting output and resources that go with it?
19) When you think of business and market growth, what factors are you taking comfort from? Is it economic, political, social, demographic, all of the above? In retrospect, what of these do you still see holding and what not? And did you go overweight on something that you should not have? This is a question you have to ask yourself and your board?
20) Finally, are we looking at new kinds of organisations emerging from this or old organisations with some rebooting, re-gearing and adjusting for capacity shifts? Bottom line, is this a big enough problem to convert into a significant response or something we can get by? I don't know, am just asking.
The industry has been consistently lobbing the ball into the government court, including asking for cuts in taxes like GST. It might be a good idea in principle to cut taxes but the government is facing a huge tax shortfall and is unlikely to think in terms of tax cuts spurring greater demand, as governments mostly have not in the past.
Carmakers or other manufacturers have little or no choice but to use this slowdown to swallow some bitter pills, including to reduce prices and take a margin hit if necessary. With companies like Maruti sitting on investments of Rs 36,500 crore and pre-tax margins on sales of 12.6 percent, perhaps the onus on cutting prices should be elsewhere.
Find latest and upcoming tech gadgets online on Tech2 Gadgets. Get technology news, gadgets reviews & ratings. Popular gadgets including laptop, tablet and mobile specifications, features, prices, comparison.
It was not just the fact that Koshyari chose to make an intervention, his manner of doing so was immeasurably crass and was a direct assault on constitutional values
Despite having two women at its centre, The Devil Wears Prada ended up reaffirming and perpetuating harmful gender stereotypes for the most part.
Nawaz Sharif remains the most popular leader in Punjab, the province that functions like the controlling authority of Pakistan