Auto - Negotiating a rough patch

Outlook for 2008-09 continues to be positive. Budget 2008 has done its bit by slashing excise on two-wheelers and small cars.

Overall auto sales fell by 4.82 per cent to 80.22 lakh units in the 10 months of the 2007-08 fiscal, against 84.28 lakh units last year.

During this period, the car segment registered a moderate growth of 12.7 per cent, whereas the larger CVs and two-wheelers have shown a negative growth of around 2 per cent and 5 per cent, respectively. Auto component sales, however, have witnessed a growth.

Last year was challenging for the industry due to a slower demand growth and increase in input costs. Players have withheld considerable price increases to date, which is likely to have a bearing on margins.

The industry witnessed several joint venture investments, including Tata with Fiat, Volvo with Eicher and Daimler with Hero Group and increased cross-border activity by M&M, Amtek, Sakthi, to name a few.

Outlook for 2008-09 continues to be positive. Demand growth is expected to be buoyant driven by new vehicle launches, likely softening of interest rates and continued growth on the export front.

A good response to Tata Nano could further add to overall growth rates. Of course, Budget 2008 has done its bit by slashing excise on two-wheelers and small cars. 


Corporate Impact

  • Tata Motors: The reduction of duty on small cars will not only positively impact the Tata Nano, dging its ex-showroom price closer to Rs 1 lakh, but the Indica line will also benefit immediately

  • Maruti-Suzuki: The duty reduction means that prices of small cars, which constitute three-quarters of sales, will reduce slightly and this might lead to increased sales. However, the company might have to take a hit on already-dispatched units

  • Hero Honda: The excise duty reduction will mean a marginal reduction of prices. Also, the rural and agricultural focus of the Budget might mean that sales in rural areas, which compromise 50 per cent of sales, could increase

  • Bajaj Auto: The company’s sales, which have declined significantly over the past year, will get a boost as excise reductions on two -and three-wheelers might help the company arrest the sales decline in the two segments

    Sectoral Impact


  • FM provides fillip to the auto industry by further reduction and rationalisation of duties

  • Small cars, two- and three-wheelers & buses to become cheaper on account of reduction in excise from 16 per cent to 12 per cent

  • A strong boost to the hybrid and electric car segment on account of reduction (24 per cent to 14 per cent) and elimination of excise duty (8 per cent to nil), respectively

  • Weighted deduction of 125 per cent to significantly benefit the outsourcing of R&D in the automobile sector