It didn’t quite play out that way. At the end of 2018, India was a very distant fourth behind Japan, and it’s unlikely to catch up soon. Factories, built on optimistic forecasts, now run severely below capacity and PV output managed to grow a meagre 0.1% in 2018-19.
Companies are saddled with excess capacity that they built up expecting a demand explosion. Honda Motor Co, for example, is using 64% of the total installed capacity of its two factories. Its second factory at Tapukara in Alwar, Rajasthan, made only engine parts and body panels from 2008 to 2014. Even Toyota is using 52% of its total installed capacity, and only 37% at its second factory that it started in Bengaluru in 2010 with a capacity of 2.1 lakh units.
With their Indian sales in a freeze, big bettors like Ford and Nissan have become heavily reliant on car exports to keep their factories running. Renault-Nissan’s Chennai factory made only 1.8 lakh cars last year, utilising 37.5% of its 4.8-lakh installed capacity. Ford, which managed 59% capacity utilisation, is believed to be working out a joint venture with Mahindra & Mahindra that would subsume its independent operations.Last financial year was the worst for passenger vehicles production since 2013-14 when factory output had fallen by 5%. Under-potential sales are behind this crunch. Domestic sales could grow only 3% to reach 33.7 lakh vehicles, and exports crashed by 10% to 6.8 lakh. Sales have shrunk across the metros, while growth in rural areas has slowed. Companies are not only halting fresh investments but also cutting production.
Industry executives say fresh investments and new jobs are unlikely in the sector, except from new companies such as Kia and MG Motors. The slowdown in the second half of 2018-19 resulted in an inventory pileup at dealerships, said Sugato Sen, deputy DG at industry body Siam. “Companies had to cut production. Turnaround is some time away.”
Ravi Bhatia, president of JATO Analytics, an industry research firm that tracks the auto industry, said, “Flat is the new norm.” The outlook for the next two years remains weak, said Bhatia, as increasing congestion and the growth of alternatives like metro trains and shared cabs have hit car sales in urban markets, while rural India is passing through a period of economic distress that has even hurt bike sales.
New investments and jobs won’t happen unless the government rationalises taxes on automobiles, said Shekar Viswanathan, vice-chairman of Toyota Kirloskar Motors. “Even a small car is taxed at 28%. The government may feel that the auto industry is earning money. But the fact is that our margins per car are much lower than taxes.”
Curiously, in this difficult market, only Maruti and Hyundai have posted growth despite their large size. Maruti, which has a market share of 51%, grew 5% in 2018-19, while Hyundai (16% share) grew 2%. However, even Maruti is cautious now. Its chairman R C Bhargava told TOI that he would have betted on a demand spurt after the Lok Sabha polls, “but with the US putting an embargo on Iranian oil exports, and BS-6 emission norms coming in from April next year, auto sales may again be hit”.
The industry’s nervousness can also be gauged from the fact that the number-2 carmaker, Hyundai, continues to squeeze out additional volumes from its original Chennai factory — which is near 100% capacity utilisation — instead of making fresh investments.
“There is uncertainty in the market, especially as the national elections are on. It does impact demand creation,” said Vikas Jain, head of sales at Hyundai India.