Even deep discounts may not lure buyers to car showrooms this December

Come December and car companies begin moaning about rising input costs, making veiled threats of a price hike from January. This is an annual feature which industry veterans know is aimed at pushing advance purchases in December - a month where sales are sluggish for almost everyone since no buyer wants to be saddled with a chassis number which will be an year old in a few days. This affects the vehicle’s resale value.

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Already this year, average discounts are expected in the range of Rs 25,000-40,000, but can even top Rs 1 lakh in some cases, according to a story in the Hindustan Times recently.

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Except for new launches such as the Honda Amaze and Ford EcoSport, every other car is available at a bargain. But car companies are unlikely to get buyers to showrooms this December, since discounts are now the norm, not an exception, and have been around for most of 2013.

It is interesting to note two things: car market leader Maruti Suzuki India has refused to bait buyers with price hike threats this year but bike badshah Hero MotoCorp has already joined the discounts bandwagon.

A story in the Financial Express this morning speaks of Hero dealers offering Rs 1,000 discount to existing Hero customers. Hero typically does not use discounts to lure customers and has been gloating about robust retail sales in the last two months. Looks like Hero’s honeymoon period is also over, at least for the last month of the calendar.

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On Maruti’s reluctance to announce a price increase despite myriad competitors having gone that way, one can only say that the company is cautious because sales have been suffering most months of this year and it may not want to scare away those buyers who come forward in either December or January.

Maruti Chairman R C Bhargava said there has been no decision yet on a price increase and therefore no announcement has been made.

So what is Maruti doing to get buyers to its showrooms? Yet another noticeable trend among car and bike makers recently has been taking their vehicles to the doorsteps of potential buyers in the Indian hinterland. With urban sales dwindling and even exports declining, companies like Maruti and Hero have begun to get aggressive on rural sales.

Bhargava said recently that between the April-November period his company’s retail sales were up 1 percet when industry retail sales (minus Maruti) were down 9 percent. He said this happened because rural sales grew by a healthy 18 percent during this period for Maruti - rural sales now account for almost a third of Maruti’s total sales.

Similarly, Hero is making quick inroads into the rural markets in a bid to expand reach and sell bikes which are otherwise not selling in the upscale urban markets.

Ashvin Shetty of brokerage firm Ambit said in a recent note to clients that he expects “December 2013 volume across all vehicle categories to be largely in line with the trend witnessed in November 2013. Two-wheelers are expected to outperform the other vehicle categories. Passenger vehicles’ volume trend is expected to mirror that seen in November 2013 and witness low single digit decline. And the Medium & Heavy Commercial Vehicle volumes would continue to remain subdued in December 2013 (November 2013 MHCV sales had witnessed a decline of 34 percent).”

In fact,most analysts agree that going forward, vehicle demand will remain subdued, at least till the end of this fiscal. But two wheelers are an exception here. Shetty says motorcycle volume growth is expected at 10 percent in the second half of FY14 versus just 1 percent in the first half due to positive impact of the good monsoon. This means rural folks have cash in hand, a situation Maruti is also encashing in by putting increased focus on rural sales.

But Shetty says growth in passenger vehicles (cars plus utility vehicles) will remain flat second half of the fiscal versus a 5 percent decline in the first half.