Influence of political factors on business: Election is 'key' for Indian car industry

WARC, 3 March 2014

NEW DELHI: Indian automakers are pinning their hopes on the general election in May this year to provide political certainty and unleash domestic demand, industry insiders have confirmed.

In comments to Bloomberg at the recent New Delhi auto show, a series of leading figures from the Indian auto industry made it clear they didn't expect domestic demand to pick up before the election, which will decide the fate of the current Congress-led government.

Until then, automakers are holding back 11 of the 14 new models displayed at the biennial car show, which witnessed 20% lower attendance levels than in 2012.

"We think new models will help create excitement and also expect buyers to come to market once political uncertainty clears," said Ammar Master, an analyst at LMC Automotive, who hesitantly expected vehicle sales may rise 7% in 2014.

Rakesh Srivastava, senior vice president for sales and marketing at Hyundai Motor India, agreed that he didn't expect demand to pick up before the election, but hoped the situation would then improve.

"Regardless of which party comes to power, it should lead to improvement in investment climate, which would help in terms of conversion of pent-up demand," he said.

Echoing his remarks, R.C. Bhargava, chairman of Maruti Suzuki India Ltd, said: "Demand will only turn around once we know who's going to form the government, and the economic policies they take and how that impacts sentiment."

However, automakers should be heartened by data from the Society of Indian Automobile Manufacturers which shows passenger-vehicle sales rose in each of the fiscal years when Indian voters went to the polls in 2009, 2004 and 1999.

Sales rose 26% in 2010, 18% in 2005 and an impressive 49% during the 1999-2000 fiscal year while deliveries increased by an average 31% over the past three election years – a rate more than twice the average 13% annual growth recorded over the last 15 years.

In the meantime, said Ranjit Yadav, president of the passenger vehicle business at Tata Motors, "we expect demand to remain stressed … we expect a tough few quarters ahead".

Data sourced from Bloomberg; additional content by Warc staff

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