The Fault In Our Cars (Sales)

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Good morning. In today’s edition: The slowdown in car sales could be something more ominous, Ola gets a show cause notice and Hyundai Motors goes down the IPO road. 

THE TAKE

Car Sales Slump: Is It A Consumer Economy Slowdown?

Last week, Mahindra & Mahindra’s Thar ROXX saw 1,76,000 bookings within the first 60 minutes of the window opening after its launch. The price of the SUV ranges between Rs 12 lakh to Rs 22 lakh. Mahindra had a similar run with its XUV 700 model that had a waiting period running into 18 months post-Covid, also because of a production slowdown at the time. Right now, many hybrid car models, like Toyota’s Hycross hybrid, have waiting periods of up to a year. 

On the other hand, India’s car dealerships are overflowing. The latest figures from the Federation of Automotive Dealerships (FADA) show that there are close to 8,00,000 cars worth Rs 80,000 crore lying unsold. Inventory levels are at a record 80-85 days. While the new Thar seems to be sought after, other cars, including entry-level ones, are not doing so well.

In October 2023, India’s largest car maker Maruti Suzuki’s chairman RC Bhargava had expressed hope that the demand for smaller cars would make a comeback in the next two to three years, stressing that this was important for the growth of India’s overall passenger vehicle industry. His thoughts made sense, except that Bhargava said roughly the same thing a month ago at the company’s 43rd annual general meeting.

Bhargava reiterated that Maruti remained committed to its small car lineup, projecting a revival in the segment by 2025-26 or the next financial year. He also said he firmly believed that low-cost and small cars were necessary for India’s economic and social conditions and that a temporary setback in demand would not change Maruti’s strategy.

Maruti’s small car sales have been falling. They fell more than 12% in the April to July 2024 period according to reports. Its utility vehicle segment however grew close to 16% in the same period. One can’t fault Mr Bhargava’s logic that upwardly mobile consumers, who aspire for cars, often graduate from two-wheelers to entry-level cars. 

Car dealers have told me in recent months that potential buyers for entry-level cars are not able to put together loans because they cannot bring in the minimum amount. On the other hand, car prices have jumped up. 

Former FADA president Manish Raj Singhania told me last month that salaries and incomes had not risen at the same pace as car prices had (70%). “Average prices for passenger vehicles were around Rs 6.5 lakh four or five years ago, now the average price is almost Rs 11 lakh,” Raj said. At the same time, premium cars, including SUVs, have done well in a phenomenon that is now well documented as the premiumisation of the consumer economy.

There are a few factors leading to this. Consumers will always stretch themselves for something new they like and if they see good value. Mahindra’s Thar is a model that consumers like, though I personally found its Jeep-like ride challenging for longer drives.

Then there is the classic value proposition such as for hybrid cars or for that matter even electric cars. The question that follows is: are consumers not finding the current crop of car models interesting and exciting enough?

Nilesh Gupta, director at Vijay Sales, which now runs 143 electronics showrooms across India, once told me in the context of slowing sales that nothing turned around sales better than a new model. He was referring to colour televisions but the same applies to cars to some extent as well.

The other more dreaded possibility is that a fundamental slowdown is kicking in. But to be sure, we’ll have to wait out the festive season. Till that point, India’s auto industry will depend on hope and of course car dealerships to park their unsold cars.

CORE NUMBER

$19 Billion

This is the total value of 551 deals made in India in the third quarter of 2024, the highest volume of deals made in a quarter since the first quarter of 2022. The report by consulting firm Grand Thornton Bharat said that record mergers and acquisitions activity and a private equity boom led to this surge. Mergers and acquisitions saw 57% higher volumes and 65% higher values compared to the previous quarter.

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FROM THE PERIPHERY

—💹 South Korean auto giant Hyundai’s Indian arm Hyundai Motor India’s IPO is likely to launch next week, Reuters reported three sources as saying anonymously. The $3 billion IPO priced at Rs 1,865-1,960 per share will not only be the automaker's first stock market listing outside of South Korea but also the biggest stock offering in India this year. The Core had earlier reported about how Hyundai plans to expand in India, and how it became popular in the country. 

—🛵 Ola Electric has been hit with a show-cause notice from the Central Consumer Protection Authority (CCPA) over 9,948 complaints filed between September 2023 and August 2024. Issues include delayed deliveries, faulty vehicles and misleading ads. Ola has 15 days to respond or face action, though it claims business won’t be impacted. This notice, following previous scrutiny for pricing violations, cites service lapses and unfair practices under the Consumer Protection Act, 2019. Complaints about Ola Electric’s scooters have existed for a while, and the company has mostly chosen to publicly deny this rather than find solutions. 

—🥈 India is set to raise concerns about the rules of origin in the India-UAE trade deal due to a staggering 5,853% increase in silver imports from the UAE, skyrocketing from US $29 million in FY23 to US $1.74 billion in FY24. CNBC reported that following the 12th meeting of the India-UAE High-Level Joint Task Force on Investments on Monday, Commerce Minister Piyush Goyal indicated these issues would be discussed in a forthcoming joint task force meeting in the UAE. The Comprehensive Economic Partnership Agreement (CEPA) has significantly boosted non-oil trade, reaching US $28.2 billion in early 2024, with FDI also rising sharply. 

—⚙️ Foxconn is building the world’s largest facility to produce Nvidia’s GB200 chip, driven by skyrocketing demand for the AI-powered Blackwell platform. Known for assembling iPhones, Foxconn is profiting from the AI boom, especially as a server manufacturer. Foxconn VP Benjamin Ting told The Business Standard about the importance of the Nvidia partnership but kept the location secret. Chairman Young Liu highlighted Foxconn’s readiness for the AI era, boasting advanced cooling tech to support the GB200 servers.

😒 UGHH

Tomatoes are acting pricey again. Tomato prices per kilogram surged to Rs 90 in the Delhi-NCR region prompting the government to sell the fruits at Rs 65 per kilogram at 50 locations. This, reports suggest, was in anticipation of the festive season in the country. Longer monsoons and high humidity also led to the prices shoot up by almost a 100% in the last few weeks

ICYMI

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