Suddenly, the automotive market is in flux. Consumers are once again booking new cars, and not just the traditional Toyota-Honda-Suzuki vehicles but Kia, Hyundai and Master Motors variants that have been newly introduced by new entrants. In fact, delivery times are stretched out to 3 months or more, and customers are willing to pay “own” or premium again.
After recording zero sales in Apr-20 where the industry reached its rock bottom, the recovery has been swift. Over the past four months, cumulative sales for Toyota have grown 87 percent and for Honda 66 percent. In Oct-20, Toyota’s cars grew 120 percent from the corresponding month last year against Honda’s growth of 61 percent. Though these numbers are not comparative to the volumes the industry was garnering during FY17-18—in fact, from Oct-18, Honda sales have dropped 55 percent in Oct-20 and Toyota by 14 percent—they are nothing to scoff at as they indicate an unparalleled recovery very soon after lockdowns lifted.
The industry is salvaging vanishing volumes, pulling back the confidence the market had lost in the process of economic slowdown and covid-19 piling up existing troubles. Demand is growing back as incomes and consumer/ business confidence stabilizes in addition to lower interest rates which have made borrowing for an auto loan cheaper overall compared to last year.
Suzuki buyers are still staying cautious though. The proverbial affordable segment is finding it more difficult to find its footing with Suzuki sales down 22 percent in 4MFY21 against the period last year and by 13 percent in Oct-20 against Oct-19. Alto is coming from a high of its launch-year where it overtook Mehran’s volumes fairly well and outperformed the outgoing vehicle. However, as earlier opined, the affordable segment is where the demand is the highest, carrying minimal savings with the frailest flexibility in absorbing price incrementals and additional costs.
The company should ideally benefit from the near-halt of used car imports into the country. Over the years, a deluge of smaller cars were being imported into the country from Japanese auctions which typically competed with Suzuki models. That trend will soon materialize. With imported cars in short supply, consumers will start turning back to Suzuki as well as new models in the market such as Kia’s Picanto or Toyota’s Yaris—except they are all much more expensive now than two years ago considering their engine size and model type.
Automakers should keep prices at their current level to not trigger another shut-off from prospective car buyers. With the currency appreciating, imports should be cheaper and some price reversal would go a long way in buoying demand.
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