The Hindu Business Line : Rough road ahead for Maruti, Hyundai?

Car exports, a major driver of sales volumes for passenger carmakers during recent months, could be under pressure if European governments decide to push ahead with a review of their scrappage incentive schemes.

Car exports from India have grown strongly in recent months because of the expanding market for small cars in Europe, Asia, West Asia and Latin American markets.

Cars such as the i10 and i20 manufactured by Hyundai Motor India and A-Star by Maruti Suzuki have propped up the total sales volumes for these companies since January.

Exports made up almost 14 per cent of Maruti Suzuki’s total sales volumes and close to 50 per cent of total cars dispatched by Hyundai Motors in July 2009.

The “bangers for cash” or the scrappage incentives introduced by the European nations such as UK, France, Germany and Spain, have been the major propellers for exports. The 600 million-pound program which took effect from May is expected to run through February 2010. As a result of this incentive, the UK car market saw a 2.4 per cent year-on-year increase in new car registrations in July 2009.

However, according to data released by the Society of Motor Manufacturers and Traders, UK, sale of new cars is still down by 19 per cent (year-on-year) when scrappage scheme sales are excluded.

Import threat

Statistics such as these and worries that the scrappage scheme is not benefiting local manufacturers appear to be prompting a review of these schemes at this point.

A glut of cars being imported from countries such as Japan, Thailand and India has affected the sales of domestic car makers such as Peugeot, Citroen and Renault in France. These companies are said to be lobbying with the French government to phase out the scrappage incentive. The trend to buy imports has been abetted by a steady increase in fuel prices, which has already prompted European buyers to make a conscious decision to shift to fuel-efficient small cars.

Industry statistics published in a British newspaper revealed that just four of the top ten car scrappage sellers (Ford, Toyota, Vauxhall and Nissan) have manufacturing capabilities in the UK.

The other major beneficiaries of the incentive – Hyundai and Suzuki, don’t have production units in Europe.

Maruti Suzuki’s hatchback, A-star, is sold under the brand name, ‘Suzuki Alto’ and with some minor changes, is also being contract manufactured for Nissan, which sells it under the label – Pixo. i10, i20 and i30 are Hyundai’s offerings to the European markets, with i10 and i20 manufactured by Hyundai Motor India.

The scrappage incentive in the UK is limited to 300,000 cars. The country has already seen more than 150,000 cars exchanged through this programme. If more European cars makers such as Volkswagen and BMW join the lobby opposing the “bangers for cash” deal, it would certainly be a threat to exporters. Nevertheless it is still early to conclude if Indian auto makers will see slippage in sales volumes given that the governments in Europe are yet to review their policy.

Moreover, it cannot be disputed that the incentive is quite a hit and has lifted up buyer sentiments.

Related Stories:
Hyundai may shift i20 production to Europe
Maruti, Hyundai seek to ride on Europe benefits
Pilot shipment of Maruti’s A-Star sets off for Europe

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