The RBI’s move to keep key rates unchanged has dashed the hopes of the auto industry players. Also, there are reports that the production cuts of petrol cars are rising and the auto companies are also considering to slash the output of diesel cars.
However, in an exclusive chat with NDTV Profit’s Ira Dugal, Uttam Bose, MD, Hindustan Motors, and Enrico Atanasio, head, commercial, FIAT India Automobiles Ltd, say that they are not planning to cut production at least for now.
They feel that the current slowdown is temporary and the Indian auto market still has a potential to grow.
Below is the complete interview. Watch the accompanying video here.
- There are reports that the auto companies are now going for a cut in the production. How are things looking out there? Are you also considering production cuts? Do you have any specific plans?
- Bose: There is no doubt that the industry is impacted. If you see the Indian auto market, financing is one of the major factors. The industry runs on it. Rates matter a lot. As far as the petrol prices are concerned, this is a double whammy for the industry as such. As far as our company is concerned, we are not going to slow down our production for now. In fact, we are ramping up our production. Because majority of our demand is in the diesel segment. Both Mercedes and Mitsubishi are from the diesel line. So, we are not seeing any cuts in the production for the next two months. But I’m not sure about the future. The way the economic situation is panning out, we might decide to go for a cut but not at this point of time.
- What is your strategy from the last couple of months to deal with the slowdown?
- Atanasio: At this point of time, we are focusing on re-organising our network. We don't foresee any major slowdown in the production.
- There has been a talk about the inventory buildup. there has been a distinction made on diesel and petrol, what do you think? What have you picked up from your industry players as well?
- Atanasio:We are seeing a shift from petrol cars to diesel cars by passengers. Hence, we need to focus strongly on diesel cars. From our side, what we can do is to minimise the petrol car production and continue to focus on the diesel. Our reputation in the diesel segment is very good and we will continue to focus on that.
- If there is a one-time measure like an additional tax on diesel vehicle, what can be an impact of the same?
- Bose: It will definitely have an impact on the auto sales. But at the same time, these sort of decisions need to be evaluated properly by the government. I will share some statistics now. We are trying to hit this segment of the auto sector, which is producing diesel cars. As Enrico shared with us, the number of production of diesel cars is increasing because they are in demand now. We must have a look at the customer, what does the customer need in an economy. Out of the total diesel consumption in India, 1.6 per cent is consumed by the passenger car segment, which we are trying to hit. We now need to be authentic in our calculation at this point of time. If we increase the excise duty for passenger cars to the extent of 5 per cent, then the government earns the revenue of Rs 2000 crore. However, if there is a Re 1 increase in diesel across the board, then the government earns around Rs 8,000 crore plus.
- Mr. Bose, the industry wants the government to take note of this figure. But my question is that if the tax gets imposed, then how much of the hit the diesel cars could take, especially at the time when people are ramping up diesel car production? Enrico, will it make a significant dent there?
- Atanasio:Well, definitely there will be a major impact if diesel duty is increased. The people will be looking at the breakeven point between the petrol and diesel very carefully. We may witness a slowdown in the total market, but it won't go significantly down simply because it is a trend of a mature market, which is going towards a careful analysis of the purchase and therefore, the corrective evaluation of the diesel value.
- Mr. Bose, do you agree with that point?
- Bose: I will differ here. I think it will make a huge impact on the sales. There is still stock of diesel cars, around 1 lakh, which is not getting sold. Last May, there were around 56,000 cars. So, if I talk about the inventory of un-sold cars, so on a year-to-year basis, it has practically doubled. So definitely there would be an impact on diesel car sales if the 5 per cent excise duty is levied in the passenger car segment.
- At a macro level, we are talking about the growth in India coming down. As a significant player, who wants to grow in India, are you starting to rethink any of your plans?
- Atanasio:I feel this market still has a significant growth (potential) despite a lethal slowdown. It could be a temporary one but not a long term plan of the company. In the long term, our company is investing into these markets. Hence we will continue to do so in spite of short-term movements. On the other hand, we have certainly seen a slowdown in the market and a pile up of stock. But this is the market that is projected to grow up by another 10-12 per cent this year and this is a continuous trend, so this does not change our plan to grow in this market.
- Do you think there will be any sort of positive trigger for the industry this year or we are going for a long-haul slowdown?
- Bose: The industry hasn’t seen any long term slowdown as such. Even during the 2008 recession, the auto industry was the first one to jump back. I agree with Enrico on the long term vision we have, we feel there is enough potential in the Indian market. This slowdown is not a permanent issue. It will phase out soon.