News and views about the Auto sector in India

Weekly news updates on trends and happenings in the Indian Automobile Industry

The big news this week was the Bajaj Demerger. A must-watch trend is the sector’s online marketing efforts cashing in on the Internet’s popularity as a tool for pre-purchase research. In a market as diverse as India, it’s no surprise that a boom in the used car market jostles for column space with luxury car sales. Diesel models seem to rule, in an answer to the customer’s eternal quest for lower fuel bills.

- Chillibreeze Business Research Team

Bajaj investors bank on demerger

Bajaj Auto has seen a sharp slowdown of sales, with a year-on-year decline of 31% in April 2007 in two-wheeler sales. The story is not too different in the three-wheeler segment.

Faced with poor performance, brokerages and fund managers have downgraded the company. JM Morgan Stanley downgraded the stock to equal weight from overweight, while HSBC downgraded it to under-weight from neutral in its recent report.

Investors are now pinning hopes on gains from the demerger of the Bajaj Auto’s investment and insurance business rather than company mainline auto business, at least in the short-run.

Company officials claim that they haven’t been pushing their 100cc vehicles as they are replacing the line with a brand new product in July this year. Much of the blame for this decline in sales is also attributed to the hike in interest rates and bank lending terms with respect to down payment. The firm’s three-wheeler segment, its cash cow, which traditionally evens out such fluctuations, too lost its leadership position to Piaggio Vehicles. Dealers are not worrying too much, barring a small decline, its business as usual, they say.

May 17, 2007
Source: Economic Times

Maruti cars dearer by up to Rs 4,300

Maruti Udyog Ltd, the country's largest car maker, on Thursday said all its models ranging from M800 to the latest sedan SX4 will cost more by up to Rs 4,300 on account of equipping the cars with a new anti-theft device.

The immobiliser device branded as iCAT (intelligent computerised anti-theft system) will be factory-fitted. Cars fitted with this advanced device are currently reaching Maruti showrooms across the country, a company statement said. The price hike ranges between Rs 1,000 to Rs 4,300 (ex-showroom) for the various models.

Commenting on the new initiative of the company, MUL Managing Director Jagdish Khattar said the iCATS would provide the customer a foolproof device that prevents theft. iCATs work on digitally encrypted codes and is tamper- proof, the company said. In the light of the total vehicle security offered by the device, ICICI Bank has offered special interest rates for cars equipped with it. Insurance companies too are offering a rebate of Rs 500 on insurance premium for cars equipped with iCATs, it added.
With the introduction of iCATs, the original set of keys becomes even more important and in case of loss of key, only the original second key would be able to start the car. If the second key is also lost, the third key would have to be ordered from the company.

May 17, 2007
Source: Economic Times

Bajaj kicks off split with 3-way spin off

It’s finally happened: Bajaj Auto’s auto and financial services businesses are to be spun off into new entities so that investors can benefit from the strong growth in the two sectors. This brings the curtains down on the first part of Bajaj Auto’s demerger saga. But before Rahul Bajaj’s sons, Rajiv and Sanjiv, can call these companies ‘Hamara Bajaj’ , the when and how of the separation of the four senior Bajajs—Rahul , Shekhar, Madhur and Niraj—has to be settled.

Under a phased scheme announced here on Thursday, the auto business will initially be spun off into a fresh company called Bajaj Holdings and Investments Ltd (BHIL) and the financial services company will be called Bajaj Finserv Ltd (BFL). The existing Bajaj Auto Ltd (BAL) will be the holding company. Later, as the approvals and clearances come through, BHIL will become Bajaj Auto while the existing BAL will become the holding and primary investment company as BHIL.

Rahul Bajaj, chairman of Bajaj Auto and the two new entities, explained that the demerger is with effect from March 31, 2007, but the entire procedure could take till the end of the year. “Rajiv will continue to head the vehicle manufacturing company, now being called BHIL, as managing director and CEO. Sanjiv, as executive director, will continue to report to the MD, being in charge of the finance, legal, international operations and corporate governance issues. Also by December, the international marketing area, being a line function and directly related to vehicle manufacturing company, will go to Rajiv,” Mr Bajaj said.

The two new companies will have a four-member board, comprising Rahul, Madhur, Rajiv and Sanjiv Bajaj while the existing BAL board is expected to remain intact. Mr Bajaj explained that till the demerger is complete and Bajaj Finserv comes into its own, Sanjiv will continue with his current responsibilities.

May 17, 2007
Source: Economic Times

Tatas' new range of trucks to take on global majors

After indigenous production of world-class cars, auto major Tatas now plans to come out with a whole new range of trucks to compete with global majors.

With the golden quadrilateral highway project, linking four metros in the country, in advance stages of completion, there is a dire need for trucks with more powerful engines to move goods faster. "We are revamping the whole range of products in commercial vehicles," Tata Motors' Managing Director Ravi Kant said. Kant said that the company would launch its all new trucks with international styling in new markets. The company plans to launch new trucks in the Korean market in 2008.

Tata Motors has formed a joint venture company with Thonburi Automotive Assembly Plant, the Thailand-based independent assembler of automobiles, to manufacture, assemble and pick-up trucks. This will facilitate Tata Motors to market its product in Thailand, the second largest pick-up market in the world after the US. The company has already introduced commercial vehicle models in South Africa, which is its single largest market in international business. It has also launched Ace in Sri Lanka. It is already present in Ghana with its commercial vehicles. Under a technical assistance agreement with Tata Motors subsidiary, Tata Daewoo Commercial Vehicle, Afzal Motors in Pakistan has commissioned a new truck and bus assembling plant in Karachi to assemble heavy-duty trucks.

Tata Motors has also plans to set up a plant for its mini-truck, Ace, in Uttarakhand with an investment of Rs 1,000 crore. Tata has three other plants across the country. The Jamshedpur facility is engaged in manufacturing of commercial vehicles, Pune for both passenger and commercial vehicles and the Lucknow facility for commercial vehicles.

The auto major sold 2,98,586 units of commercial vehicles during the last fiscal, recoding an increase of 22 per cent over FY'06.

May 20, 2007
Source: Economic Times

GM to launch diesel-powered Optra

General Motors India on Monday said it will launch a diesel variant of its premium sedan Chevrolet Optra in the first week of next month.

"The common rail diesel variant would be powered by a 2.0 litre engine and would be competitively priced to take-on competition," GM India Vice President P Balendran told the agency.

He, however, refused to comment on the pricing of the first diesel offering in the Optra range. The diesel variant would be in direct competition with Skoda Octavia, which is being sold in a range of Rs 11.35 lakh to Rs 14 lakh (ex-showroom Delhi).

Chevrolet diesel Optra would be rolled out of GM's Halol facility in Gujarat, he added.

May 21, 2007
Source: Economic Times

Motown plans online strategy to get mileage

Competition is mounting in motown. With new launches hitting markets almost every month, auto players are now using innovative marketing strategies to woo customers. In a bid to cut marketing costs as well as reach out to new segments, auto makers are now testing an online strategy, which connects customers, dealers and the companies on the same virtual platform.

While a completely online model is unlikely to work out for a high-involvement product like a car, it is a combination of online and offline strategies that auto companies will be betting on. Internet research is becoming an important part during the purchasing process of cars nowadays. Tools like microsites, direct mailers through the internet, SMS campaigns will help the customer complete his research. On their part, financiers too are looking to provide price comparisons about deals online, saving customers the physical hassle of hunting for the best deal.

Auto players are also in talks with software companies to help them design portals for online sales. For instance, Toyota has decided to take only the online route to sell its limited edition model of Toyota Corolla. Toyota Kirloskar Motor (TKM) has set up a back-office operation to tap interest coming in via the Internet, linking it to dealers directly. Similarly, Maruti Udyog has been using the online route for some time for its scheme targeted at the NRIs. Expat Indians can buy a car for someone in India through online transaction.

Globally, auto companies have been successfully trying this model. “The usage of online and offline methods leads to lower marketing costs but more importantly higher conversion rates. Globally, nearly 50% of the car sales happen through a combination of online-offline models,” said Scott McCormack, VP marketing, sales and service, Ford India.

May 23, 2007
Source: Economic Times

Used cars catch up with the brand-new

Two-and-a-half years ago, True Value, Maruti Udyog’s used vehicle business was considered nothing more than MD Jagdish Khattar’s pet theme. No one thought it was worth anything more than a side business.

Today, in terms of space (27,000 sq ft on average) and salaries, True Value is now on par with new car dealerships. The car maker has announced a target of 1 million evaluations for this year, more than double the 450,000 clocked last fiscal. Understandable. Maruti’s research has shown that in the cities where True Value is present, new car sales through exchange is anywhere between one eighth to one quarter of all sales. In cities like Bangalore and Kochi, True Value converts to new cars comprise 22-24% of new sales. Even in a big market like Mumbai, True Value converts command around 16% share. Analysts say that’s only the tip of the iceberg given that the used car market clocked around 1 million units, almost the same volumes as new car sales in fiscal ‘07. Maruti’s new car sales through True Value number around 8,000-9,000 units per month and the total number of True Value old car buys hit 84,000 units last year. Those are big numbers for an industry that’s battling interest and margin squeeze and slower growth.

Hyundai India has also seen its used car business, Hyundai Advantage, available in 11 cities through around 26-27 dealers grow steadily. The firm’s used-exchange penetration has gone up significantly in the last two years from 10-11% of total sales to around 15%.

Hyundai isn’t the only competitor to hit the accelerator on used cars. Toyota Kirloskar Motor India recently started its used-car business and is seeing furious growth. Some believe that the used-car market is bigger than the current car market.

However, despite Maruti’s aggression, 60-65% of all used car sales are customer-to-customer transactions. Brokers corner another 30% while the organised and branded end of the business is only around 10%. Also given the difficulty in inter-state movement of vehicles and lack of uniformity in VAT regulations, the used car pool can’t travel from high density to low density areas. That’s why a section of the auto business is still cautious about the wild-wild-west nature of this segment. While Maruti is going all out on True Value with schemes like used car melas, other players are busy getting a wider footprint in the business.

May 24, 2007
Source: Economic Times

Luxury autos vroom into Punjab

Luxury car brands like Audi, Porsche and BMW till date did not have any authorised dealer in the Punjab-Haryana region, despite it boasting 15% of the Indian luxury car marketshare. Ludhiana and Jalandhar, for instance, are home to the largest number of Mercs in India. Sure enough, things are changing. BMW and Audi have appointed authorised dealers here, while Porsche is about to finalise its dealer in the region.

Chandigarh-based JC Automobiles has bagged the dealership for German auto giant Audi. Currently, it has dealerships in three cities, namely New Delhi, Mumbai and Bangalore. "Punjab has plenty of NRI money and they spent them on luxury items like cars. Luxury cars are a status symbol for the people here. Moreover, Punjab along with Chandigarh, has one of the strongest economic centres in the country. There is a lot of business opportunity in this region and that's the main reason we have taken the Audi dealership." said JC Automobiles director Atul Aggarwal. Seeing the huge potential in the market Aggarwal expects to sell about 200 cars in the first year.

Last month BMW India, a 100% subsidiary of the German company BMW, had appointed Krishna Automobiles as its dealer in Chandigarh. And its sales volume (65 bookings) for the two months speaks about the demand in the region. They e plan to sell at least 150 cars this year, but given the demand they might well exceed the target. The firm will be opening a new showroom in either Jalandhar or Ludhiana soon. BMW had earlier never sold its cars in the region as it didn’t have a dealer here and the company policy does not allow it to sell at a place where service is not available.

Porsche, another German company which has come to India, will also look into the region sooner or later. The company is currently focusing on the south. Chandigarh-based Joshi Autozone is in discussions with them to bring the company to this region.

May 25, 2007
Source: Economic Times

Carmakers see more mileage in diesel

Higher fuel bills have kicked off demand for diesel variants and the success of mid-size sedans and top-end hatchback models like the Hyundai Verna, Ford Fiesta and Suzuki Swift has triggered off a flurry of launches this year.

The Detroit big two General Motors and Ford have both announced diesel introductions in the coming months. While Ford will launch its Fusion diesel version in the third quarter of this year, General Motors will strap a diesel engine on its luxury sedan Optra this June.

There’s a reason for the diesel push. Already, almost 70-80% of all Fiesta and Verna sales are in diesel. And the recently launched Mahindra Renault’s Logan sedan has also positioned itself aggressively on the CRDi platform. The Logan’s diesel demand is almost 70% of the total bookings received by the auto maker.

Not to be outdone, arch rival Tata Motors recently launched a CRDi version of its Indigo sedan at a price ranging from Rs 5.25 lakh-Rs 5.85 lakh (ex-showroom Delhi), making it the most aggressively priced CRDi sedan in the market right now.

In the luxury segment, both Mercedes Benz and Skoda are doing well with their diesel engine. Skoda is likely to bring a diesel variant even in its much awaited small car Fabia. And Maruti’s new launches in the future would also probably include the diesel Swift sedan. As for Hyundai, it has indicated it will introduce a diesel Getz this year.

According to estimates by the Society of Indian Automobile Manufacturers, diesel is currently around 20-25% of the total car market. However, as more CRDi models roll out, this number should increase substantially. For carmakers, diesel offers the perfect answer to the customer’s search for lower cost of ownership.

May 25, 2007
Source: Economic Times