Strong Outlook - Festivals Round the Corner

7th UBS Auto Dealer Survey

Summary

Dealer outlook remains positive; Sharp jump in first time customers

Based on responses received from 41 auto dealers across the country and across companies in July'10, we remain positive on car sales in the next two months. 68% of the dealers expect sales to increase by 5%-15% or more. 59% of dealers reported an increase in first time customers in last 2 months. Dealers were also positive for the used car market, with 85% of dealers expecting the sales to grow 5%-15% or more. 39% of dealers reported an increase in footfalls.

Slight improvement in finance availability; however, rates continue to rise

22% of the dealers felt that the finance availability has become liberal in the last 2 months, while 59% dealers felt the finance availability for buying new cars is returning to normal level. 49% reported increase in auto financing rates over the last 2 months.

Inventory uptick ahead of festivals; Discounts almost remain unchanged

There seems to be some inventory built up by the dealers in anticipation of the upcoming festival season. 39% of dealers reported more than 4 weeks of inventory. 67% of Hyundai, 60% of Tata Motors and '0%' of M&M dealers had more than 4 weeks of inventory. 20% of the dealers noticed increase in discount, while a similar percentage noticed a decrease in discounts by the OEMs.

Marginal price hikes since April'10; Dealers expect minimal impact

34% of the dealers noticed a price hike in the range of 2%-3% or more in the key selling models. 73% of the dealers felt that the price increase will have no impact on sales, while 25% felt that the hikes will have a marginal impact in the range of 0%-5%.

UBS Composite Auto Index

UBS Composite Auto Index is designed to measure the aggregate value of the responses to our bimonthly survey questions. We have incorporated six components in constructing our index and weighted each of them based on our perception of its overall importance in determining the environment of auto market in India.

Dealer outlook for car sales

 
UBS index measures the change in our respondents' view from its previous survey and is not meant to be an absolute measure of business conditions. The index value has a scale of 0-100, with 0-49 implying incrementally weakening market environment, 50 incrementally stable market environment, and 51-100 incrementally improving market environment.

UBS July Index came in at 62, an increase of 9% from April Survey Index value of 57. This increase was driven by increase in score for four of the index components - First time customers, Financing rates, Outlook for car sales, and Outlook for used car sales.

We observe that the scores for First time customer and Outlook for used car sales have seen a considerable improvement since last survey. The decline in the finance availability indicates a decline since last survey but it is still above 50 indicating there is a slight improvement in financing environment in the past 2 months. The change in interest rate remains below 50 implying weakening of the factor. Overall, the Index value of 62 implies improvement in Auto Market environment and an improvement of 9% indicates that the rate of improvement has picked up since the previous survey.

UBS Auto Dealer Survey results	UBS Composite Auto Index

 
Company-wise Summary of findings

Tata Motors - Positive outlook, but slowdown in footfalls

80% of the Tata Motors dealers expect sales to improve by 5%-15% or more in the next 2 months. All the Tata Motors dealers expect the sales of used cars to improve by 5%-15% or more in the next 2 months. Only 20% of Tata Motors dealers noticed increase in footfalls of 5%-15% or more and same number reported increase in the first time customers. 20% of the dealers reported an improvement in financing environment in the last 2 months, while 80% of them reported a hike in the financing rates by 1 % or more. 20% of the dealers noticed a price hike of more than 3% since April'10 in their key selling models and 60% of them expect it to have marginal impact on sales (0%-5%).

M&M: Supply constrained - Dealers turn negative

Only 17% of dealers think that sales will improve 5%-15% or more in the next 2 months and similar percentage of dealers reported increase in the footfalls. 33% of dealers noticed an increase in first time customers. 50% of the dealers reported decrease in discounts. The inventory seems to be an issue, as 50% of the dealers reported inventory levels of less than 2 weeks.

Maruti: Dealer outlook is strongly positive

84% of Maruti dealers expect the sales to increase by 5%-15% or more in the next 2 months, equally split between 5%-15% and 15% & above. None of the dealers felt that sales will slow down in the following 2 months. 58% of the dealers reported an increase in footfalls in the last 2 months, which was highest amongst all the dealers. 67% of the dealers noticed increase in first time customers. 50% of dealers carried inventory of more than 4 weeks. Discounts remained largely unchanged. While most dealers noticed a price hike in the range of 1 %-3% for their key selling models, 83% dealers expect that price hike will have no impact on sales.

Survey

Coverage

The following results are based on the survey responses which UBS received from 41 dealers across the country.

Distribution of dealer responses by company

 
Questionnaire

Q1: Compared to the last 2 months, what has been the trend in footfalls?

We assigned a numeric value to each response, with "down >75%"assigned a value of 0, "down 5-75%"assigned a value of 25, "flat" assigned a value of 50, "up 5-15%" assigned a value of 75, and "up >15%" assigned a value of 100. We then computed the average response to the question using the values assigned to each response. This survey's average response of 54 implies small sequential increase in footfalls.

Overall, 39% of dealers have seen an increase in footfalls. 58% of Maruti and 33% of Hyundai dealers have seen an increase in footfalls in the last 2 months. Only 20% of Tata Motors and 17% of Mahindra & Mahindra dealers noticed an increase in footfall in the last 2 months. 80% of Tata Motors dealers have noticed a decline in footfalls.

Overall trend in footfalls	Company-wise trend in footfalls
UBS score - Trend in footfalls

 
Q 2: Have you seen a change in number of first time customers?

We assigned a numeric value to each response, with "decreased" assigned a value of 0, "unchanged" assigned a value of 50, and "increased" assigned a value of 100. We then computed the average response to the question using the values assigned to each response. This survey's average response of 76 implies a sequential increase in new customers.

59% dealers reported an increase in new customers, which is much higher than the 22% dealers reported in the last survey. 89% of Hyundai and 67% of Maruti dealers noticed an increase in the number of first time customers, while only 20% of Tata Motors dealers reported increase in first time customers. 56% of the other dealers noticed increase in first time customers, which includes Ford, whose 80% dealer noticed an increase in these customers.

Overall trend in new customer	Company-wise trend in new customers
UBS score - New customer

Q 3: What percentage of total sales is on cash basis?

We assigned a numeric value to each response, with "0-70%"assigned a value of 5%, "70-20%"assigned a value of 15%, "20-30%"assigned a value of 25%, "30-40%"assigned a value of 35%, and ">40%" assigned a value of 50%. We then computed the average response to the question using the values assigned to each response. This survey's average response of 28% implies the level of overall cash sales for our sample.

Overall cash sales distribution

 
41% of dealers reported cash sales of more than 30%. 60% of Tata Motors dealers and 50% of Maruti dealers reported more than 30% of sales in cash. 50% of M&M dealers reported cash sales of less than 10%.

Co-wise cash sales distribution	UBS score - % of cash sales

 
Q 4 (a): How has the finance availability for new cars changed over the last 2 months?

We assigned a numeric value to each response, with "restrained" assigned a value of 0, "unchanged" assigned a value of 50, and "more liberal" assigned a value of 100. We then computed the average response to the question using the values assigned to each response. Average response of 55 implies finance availability has become slightly liberal in the previous 2 months.

Overall finance availability change over last 2 months

 
22% of the dealers reported liberal financing than previous 2 months, while 66% reported no change in financing environment. 33% of Hyundai and Mahindra & Mahindra dealers reported improvement in financing environment. 20% of Tata Motors and only 8% of Maruti dealers reported liberal financing environment in past 2 months.

Co-wise finance availability response distribution	UBS score – Financing

Q 4 (b): How is the finance availability for new cars?

With slight improvement in the financing environment in the last 2 months, 59% of the dealers think the finance availability is returning to normal level. 20% of respondents felt that availability was liberal than normal, while 22% felt it was still stringent.

Co-wise finance availability response distribution

 
Overall finance availability response

 
Q 5: How have the average financing rates to customers buying new cars changed in last 2 months?

39% of the dealers responded that financing rates for buying new cars have increased in the last 2 months. 80% of Tata Motors dealers experienced an increased in financing rate in the last 2 months. None of the Mahindra dealers noticed any change in the financing rates, while only 17% of Maruti dealers noticed a hike in financing rates.

Company-wise financing rates response distribution

 
Financing rates response distribution

 
Q 6: How have manufacturer's discounts to customers changed in last 2 months?

61 % of the dealers responded that discounts were same as previous 2 months. 20% of the dealers felt the discounts have decreased in the last 2 months, while same number noticed an increase in discounts. 60% of Tata Motors dealers reported increase in discounts, while 50% of Mahindra & Mahindra dealers reported decrease in discounts.

Company-wise Mfr. Discount response distribution

 
Mfr. Discount response distribution

 
Q 7: How much inventory does your dealership carry?

Inventories levels indicate some amount inventory build up amongst the dealers with 39% of the dealers having an inventory of 4 weeks or more. 67% of Hyundai dealers carried inventory of 4 weeks or more, while 60% of Tata Motors dealers had similar level of inventory. Continuing the trend with the last survey, M&M dealers have the lowest inventory with 50% of the dealers reporting inventory of less than 2 weeks.

Co-wise inventory response distribution

 
Inventory response distribution

 
Q 8: What is your outlook for car sales over the next 2 months?

We assigned a numeric value to each response, with "down >75%"assigned a value of 0, "down 5-75%"assigned a value of 25, "flat" assigned a value of 50, "up 5-15%" assigned a value of 75, and "up >15%" assigned a value of 100. This survey's average response of 70 implies a sequential improvement in car sales.

68% dealers expect the sales to increase in the next 2 months, and out of these about 27% dealers expect the sales in increase by more than 15%. Maruti dealers were the most optimistic with 84% dealers expecting the sales in the next 2 months to increase and none of them expecting a decline. 80% of Tata Motors, 77% of Hyundai and 67% of others dealers expect sales growth in the coming 2 months. Only 17% of Mahindra & Mahindra dealers expect the sales to improve.

Sales growth outlook

 
Company-wise inventory response distribution

 
UBS score - Sales outlook

 
Q 9: How much price hike has the company taken since April'10 in its key selling models?

34% dealers reported a price hike of more than 2% since April'10. 40% of Tata Motors dealers and 33% of Hyundai dealers noticed a price hike of more than 2% since April'10.

Company-wise price hike in key selling models

 
Overall price hike in key selling models

 
Q 10: Do you expect the price hikes to impact sales volume?

While all the dealers noticed a price hike in the key selling models since April'10, 73% of the dealers felt that the hike in prices will not have any impact on the sales. Only 2% of the dealer felt the impact will be between (5%-10%). All of the Mahindra dealers and 83% of Maruti dealers felt that the hike will not have any impact on sales.

Company-wise impact on sales due to price hikes

 
Expected impact on sales due to price hikes

 
Dealers comments on Industry environment

Maruti Suzuki

▪	The YoY growth has been good and will continue.
▪	The festival season in the following months will help to boost the sale.
▪	Expect auto industry to grow by 20% in the current year.
▪	May and June are supposed to be slack months but the sales were good.
▪	Expectations going forward are very high.

 
Mahindra & Mahindra

▪	The supply position, which was expected to ease, did not happen. Normally, the first quarter is the weakest in year, but if it goes like this, then it shall be the best year in auto history of India. Of course, rain god has to be kind enough.
▪	Sales will go down as there is a stock issue.
▪	The next 2 months are rainy season in Northern U.P. and sales are generally little slow during this time.

 
Hyundai Motor

▪	Marriage season has got over and lack of festivals will lead to slow sales.
▪	Auto industry is growing. Many dealerships are being opened and many new cars are being launched, which will give more options to customers and boost overall growth.
▪	The market will grow at a very good rate this year.

 
Tata Motors

▪	The sales are generally weak during monsoon.
▪	Next few months are festival season in Gujarat and the sales will be good.
▪	The sales will pick in the next 2 months but the main season will come during Dussehra and Diwali