Hazy Auto Scenario Binod Agarwal, President Dear friends, First thing first. There is a piece of good news. A recent newspaper report on performance of economy is as much revealing as cheering. Going by the report, the GDP growth for the year 2006-07, which according to the quick estimates sat at 9.4%, may be close to 10%. This should naturally make we Indians proud that the double-digit economic growth is no longer the preserve of China and some small oil economies. The agriculture growth, earlier estimated at moderate 2.7%, which has been a cause of concern, is now being pitched at over 4%. The re-assessment puts the growth in manufacturing sector even higher than an earlier estimate of 12.3%. Inspite of a healthy GDP growth in the year 2006-07 and equally encouraging growth of 9% expected in the year 2007-08, the falling sales of two-wheelers and commercial vehicles is bit perplexing, the hardening of interest rates notwithstanding. Although various explanations are being touted for the slowdown, the single most important factor impeding the growth seems to be the credit crunch and hike in lending rates by asmuch as 6-7 percentage points effected from time to time ever since the inflation started to rear its ugly head a year ago leading to the monetary tightening by the central bank as one of the measures to tame it. While the wholesale inflation index has fallen below 5%, which is considered within the comfort zone, consumer price index hovering around 7-8% remains a cause of worry for the Government and RBI as reflected in the RBI's quarterly review of monetary policy for 2007-08. The fact that the inflation has been contributed chiefly by the rising prices of food and primary items, affecting a vast majority of poor people, has made RBI wary of loosening its vigil on price front. The quarterly review brings forth in no uncertain terms the RBI's thrust on sucking out excess liquidity in the banking system and containing whatever overheating persists in the economy. One thing is clear that we have to live with the fact that we are not going to see the interest rates softening in the near future. Continuing volatile movement of oil prices touching $75/barrel now is as much a concern for the Government as for the industry and customers. Any hike in fuel prices which is lurking ominously on the horizon will not only drive the inflation up, but will also put a damper on the auto industry's hope of turnaround in the second half of the current financial year. The scenario ahead looks hazy at the moment, if not gloomy. Coming back to slowdown in two-wheeler segment, one theory doing the round is that small car segment, more so the pre-owned car market, is eating into the market share of two-wheelers. The reason put forth is that with difference in upfront payment and monthly instalment in case of small cars and two-wheelers getting narrowed, the people especially in the middle age or older age group, needing a vehicle for their daily commuting and for the use of other family members, are straightway going in for passenger car, which is considered safer and more comfortable than a two-wheeler. Most of these people graduate from a used car as their first buy to a new car later. In other words, used car market is driving the sales of new passenger cars and is also eating into the share of two-wheeler market, according to this view. The other view is that growing car market does not impact the sales of two-wheelers, as the initial cost or the monthly instalment is not the only consideration that weighs with the people on the threshold of motorised strata; the total cost of vehicle ownership including fuel and maintenance, is what matters the most to such class of people. This section of experts supports the view that these two modes of transport cater to two distinct segments of market and should grow simultaneously, without significantly impinging each other, as the income and aspiration levels go up with the economic growth necessitating the increased pace of activity, wider spread of urbanisation and greater need for mobility. I tend to agree with the view that as the Indian economy is continuing to grow at a robust pace, there is a space for growth for both passenger cars and two-wheelers, particularly when the penetration level in case of passenger car is measly seven per thousand. In the case of two-wheelers also, penetration rate of thirty-five per thousand leaves a lot of room for growth. I am sure, as soon as the inflation is safely in the comfort zone and the interest rates start softening, we shall be registering pretty good sales numbers. The worrisome factor that is casting its ominous shadow and is capable of putting spanner in the wheels is the northward movement of crude oil prices in the international market. This is something that can torpedo all plans & projections of the industry and the Government. The upward spiral of international oil prices is frightening in that it can perpetuate the vicious circle of inflation and liquidity squeeze. Let us hope that the oil prices start easing sooner than later. Having debated the issue at length, I am sanguine that the sales will pick up steam from September onwards with the advent of long festival season in India. Nothing encourages me more that the buoyant performance of Indian economy. I believe that the current sluggishness in the auto market is a temporary phase, which will pass over soon. Adverting to FADA's activities, frankly speaking, we have not had much visible activity in the last one month after the regional meetings at Chandigarh and Jalandhar. Right now, we are preparing for FADA's Annual Session, which will be held on 21st September 2007 at Chennai. After many years, FADA is organising its Annual Session outside Delhi. We are giving shape to the programme and the same will be published in the FADA Journal as and when finalised. I invite all of you to kindly make it convenient to attend the Annual Session. The Annual Session, which is dovetailed with FADA's AGM, is an occasion to review what we have done and what we need to do further. I shall be talking about it in my column in the next issue. I am happy to inform that FADA has started working in all earnestness on its next Auto Summit, which is proposed to organised on 14th & 15th January 2008 at New Delhi during Auto Expo. As you are aware, Auto Summit is FADA's biggest biennial event, which provides an opportunity to automobile dealers from the length and breadth of the country to meet each other and share their views and experiences. As the previous Auto Summits, the Auto Summit 2008 - the fifth in the biennial series starting from 2000 - is also proposed to be mounted on a grand scale. I hope, you will make the Auto. Summit 2008 a tremendous success and meaningful exercise by your overwhelming participation. We intend to publish the details on the Summit from next issue. Please feel free to send your suggestions and inputs, if any. With best wishes, Yours sincerely, Binod Agarwal