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2012 Auto Expo analaysis


The eleventh Delhi Auto Expo is notable in that it matched and exceeded the level of glitz that previous editions had led observers to expect, but there are notably fewer big ideas on offer. True, last week Bajaj released its four-wheeled people-carrier, the RE60. But previous years have seen other small vehicles, or hybrid engines, be dissected and discussed. Intriguingly, 2012 has, so far, not thrown up any such focal point for comment.

Traditionally, the Auto Expo has not just highlighted the Indian auto industry’s new-found confidence, but also provided insight into how global majors see the Indian market evolving. This year, many mid-range and high-end models have been shown, including several fancy sports utility vehicles. Over a dozen concept vehicles were unveiled, including fuel-cell driven three-wheelers, CNG-electric hybrid buses, and electric cars. But there have been no new launches of note in the small-compact segment — the area that has been worst affected by the slowdown. The stuttering performance of the Nano could also have dissuaded manufacturers from venturing into this segment.

The aggregate numbers are indicative: in 2010-11, the auto industry saw unit sales grow by 30 per cent, but the slowdown of 2011-12 is likely to be reflected in flatter sales graphs. High interest rates and high fuel prices have definitely had an impact, especially in the lower cost segments. These figures are particularly of interest as the auto industry is an especially good indicator of macroeconomic health and cyclicality. This is because its associated value chain is very long. It creates upstream primary commodities demand for metals, crude, gas, as well as for glass and plastics; it supports a major component manufacturing industry; it generates employment in tertiary sectors including sales, maintenance and repair services, advertising, finance, insurance, and modelling. A higher vehicle penetration also demands the building of infrastructure — good roads, good retail pumps, decent refining skills for engine oils, smart onboard computing systems and so on.

A classic signifier of an evolving middle class is the move up from two-wheelers to small cars — and some to mid range and beyond. It is clear, from the expectations that the Auto Expo makes explicit, that an aspect of the recent slowdown is that this mobility appears to have paused. The emergence of a new class of high-consumption individuals, however, appears to be relatively unaffected, as the luxury segment continues to post robust growth. What should be of concern, however, is the continuing absence of new, ready-to-drive, mid-range hybrids. Nothing capable of challenging the newly launched Toyota Prius hybrid – which is essentially a 12-year-old platform – was revealed at the Auto Expo. True, India does not yet have the charge station ecosystem to support hybrids to any significant degree. Even Mahindra & Mahindra, which has an experimental solar-powered design on the drawing board, is looking for overseas markets, rather than to sell in India. This is a gap in the market that can only be addressed by pushing for the right infrastructure simultaneously.