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Leaner Steps That Have Helped Tackle Slowdown Blues
The auto market is revving back to life. Last month's figures have shown that the current fiscal year is going to be a positive one, unlike the previous year. A long line of launches await the market which is now in an upbeat mood.
The auto market has consistently posted 12-13 percent growth in the last five years. The same was expected in 2009. However, almost all automotive segments reported nothing or negative growth rates. The downturn started before the onset of the global meltdown when input costs skyrocketed and car manufacturers cut down their margins.
Finances were not available and interest rates were high. Following the downturn, many private lending institutions and banks raised restrictions on auto loans. The loan value ratio was reduced by 85 percent to 60 percent by private banks, clearly discouraging buyers from making car purchases. In order to ensure recovery, they placed special emphasis on collaterals support. They also raised the bar for re-payments and cut down on long term loans.
Further, in the backdrop of global recession, the fear of unemployment in urban centres had brought down sales drastically. Cars and commercial vehicle market segments recorded a mere 0.28 percent growth in the fiscal year.
Car manufacturers were getting desperate but the markets failed to respond. Companies began exploring different ways to improve efficiency internally and externally. As a step in this direction, companies started tie-ups with banks. They awarded the most preferred bank title with whom they had tie-ups.
There were reports of Hyundai Motors signing up with Punjab National Bank and Bank of India, Maruti Suzuki had tie-ups with Oriental Bank of Commerce. Tata Motors, which was all set to launch its ultra-cheap car Nano, signed up with Canara Bank, Corporation Bank, Indian Bank and Bank of Baroda, Dena Bank, Andhra Bank, State Bank of Bikaner and Jaipur. Mahindra & Mahindra had signed up with State Bank of Bikaner and Jaipur and a few others. These banks agreed to provide loans easily to their customers at a specified rate of interest. They also agreed to provide long term loans to car buyers.
While glittering functions announced tie-ups, supply chains became efficient. The earlier processes that emphasized on dealer entrepreneurship were dropped. The yearly revision of inventory was also dropped. Companies took stock of the inventory on a monthly basis. This helped keep track of bookings and cancellations and accordingly trim production to suit the demand.
The auto market has consistently posted 12-13 percent growth in the last five years. The same was expected in 2009. However, almost all automotive segments reported nothing or negative growth rates. The downturn started before the onset of the global meltdown when input costs skyrocketed and car manufacturers cut down their margins.
Finances were not available and interest rates were high. Following the downturn, many private lending institutions and banks raised restrictions on auto loans. The loan value ratio was reduced by 85 percent to 60 percent by private banks, clearly discouraging buyers from making car purchases. In order to ensure recovery, they placed special emphasis on collaterals support. They also raised the bar for re-payments and cut down on long term loans.
Further, in the backdrop of global recession, the fear of unemployment in urban centres had brought down sales drastically. Cars and commercial vehicle market segments recorded a mere 0.28 percent growth in the fiscal year.
Car manufacturers were getting desperate but the markets failed to respond. Companies began exploring different ways to improve efficiency internally and externally. As a step in this direction, companies started tie-ups with banks. They awarded the most preferred bank title with whom they had tie-ups.
There were reports of Hyundai Motors signing up with Punjab National Bank and Bank of India, Maruti Suzuki had tie-ups with Oriental Bank of Commerce. Tata Motors, which was all set to launch its ultra-cheap car Nano, signed up with Canara Bank, Corporation Bank, Indian Bank and Bank of Baroda, Dena Bank, Andhra Bank, State Bank of Bikaner and Jaipur. Mahindra & Mahindra had signed up with State Bank of Bikaner and Jaipur and a few others. These banks agreed to provide loans easily to their customers at a specified rate of interest. They also agreed to provide long term loans to car buyers.
While glittering functions announced tie-ups, supply chains became efficient. The earlier processes that emphasized on dealer entrepreneurship were dropped. The yearly revision of inventory was also dropped. Companies took stock of the inventory on a monthly basis. This helped keep track of bookings and cancellations and accordingly trim production to suit the demand.
At the production levels, car manufacturers cut down production and reduced working hours to ensure optimum use of their resources. They laid special focus on reducing wastage, which earlier received little attention. Automation was reduced to cut costs. Further, contracts were given to new supply players. New suppliers, who were not very big in their business, but promised required quality at lower rates were bestowed with contract for supply.
Apart from these measures, companies started looking at increasing use of plastics, instead of steel. Plastics are lighter and cheaper and offer a good finish. They found that procuring heavier and costlier metals was difficult, and required more time for production.
India's largest car manufacturer Maruti Suzuki and second in rank Hyundai Motors turned to new markets in semi-rural and rural areas. They realized that rural markets remained unaffected by the global downturn. They increased sales force and the number of dealerships in rural areas. Buyers in rural areas do not necessarily depend on bank finance for purchase. Due to sales from rural markets, these companies were able to show decent profit margins.
Car manufacturers were also saved by the drop in steel and raw material rates. Especially, steel saw a drastic decline in costs, due to the global meltdown. In the last six months, auto companies have improved their margins to decent levels. This is particularly true of luxury car brands that rely on steel and were able to recover from losses quickly.
The government also pitched in to help save automakers from permanent decline. The slashed duties on luxury cars by 4 percent brought down excise duty by 3.5 percent. As per SIAM, had it not been for the stimulus packages by the government, passenger car sales would have seen no growth at all.
In the fiscal year 2008-09, car sales were 12,19,473 units, a rise of just 1.31 percent compared to the previous year. Total sales of automobiles were 97,23,391 units, which denotes a dismal growth rate of just 0.71 percent. Car manufacturers are relying on the festival season to boost sales.
The last fiscal year has been the roughest for the Indian auto industry so far. However, car manufacturer are not giving up. They have overhauled the process and reviewed unnecessary expenditure. They are now leaner and meaner in their attitude.
Apart from these measures, companies started looking at increasing use of plastics, instead of steel. Plastics are lighter and cheaper and offer a good finish. They found that procuring heavier and costlier metals was difficult, and required more time for production.
India's largest car manufacturer Maruti Suzuki and second in rank Hyundai Motors turned to new markets in semi-rural and rural areas. They realized that rural markets remained unaffected by the global downturn. They increased sales force and the number of dealerships in rural areas. Buyers in rural areas do not necessarily depend on bank finance for purchase. Due to sales from rural markets, these companies were able to show decent profit margins.
Car manufacturers were also saved by the drop in steel and raw material rates. Especially, steel saw a drastic decline in costs, due to the global meltdown. In the last six months, auto companies have improved their margins to decent levels. This is particularly true of luxury car brands that rely on steel and were able to recover from losses quickly.
The government also pitched in to help save automakers from permanent decline. The slashed duties on luxury cars by 4 percent brought down excise duty by 3.5 percent. As per SIAM, had it not been for the stimulus packages by the government, passenger car sales would have seen no growth at all.
In the fiscal year 2008-09, car sales were 12,19,473 units, a rise of just 1.31 percent compared to the previous year. Total sales of automobiles were 97,23,391 units, which denotes a dismal growth rate of just 0.71 percent. Car manufacturers are relying on the festival season to boost sales.
The last fiscal year has been the roughest for the Indian auto industry so far. However, car manufacturer are not giving up. They have overhauled the process and reviewed unnecessary expenditure. They are now leaner and meaner in their attitude.
