Thursday, November 24, 2011

Car makers turn to exports to make up for low domestic sales

To tide over the sluggish demand in the domestic market, triggered by periodic petrol price hikes and higher interest rates, car makers in India have sharpened their focus on exports.

While dampened sentiment crimped car sales by 1.8% to 1,378,513 units in April-October 2011, according to industry lobby Society of Indian Automobile Manufacturers (Siam), exports for the same period moved up 19% to 293,426 units.

Last year, buoyant demand from the home market made car firms in India curtail exports. For April-October 2010, domestic car sales saw a 33% increase over the same period a year ago, while car exports registered a less than 2% growth during the same period. This year, however, the trend has reversed.

The overall expansion in the exports volume was led by the local arms of global car makers such as Nissan Motor Co. Ltd and Ford Motor Co​., both of which have identified India as an export hub for small cars and have recently started shipping models from their factories in India.

Nissan, which sells the compact car Micra, the Sunny sedan and the X-Trail sports utility vehicle (SUV) in India, started exports of the Micra in October 2010. The company despatched 59,770 units of the model in the April-October 2010 period, according to Siam.

Similarly, Ford India​ Pvt. Ltd began overseas shipments of its small car Figo in June last year, and ramped up export volumes to 15,402 units during the same period from 4,882 units a year ago.

The export volumes for the last four years, too, suggest a strong correlation with domestic demand. In years, when the domestic market has been sluggish, auto makers have been aggressive on exports and vice versa.

Michael Boneham, president and managing director at Ford India, said his firm plans to ship out 20% of the total production by the end of this fiscal. Nissan India declined comment. An email sent on Friday remained unanswered.

Kumar Kandaswami, a senior director at Deloitte Touche Tohmatsu India Pvt. Ltd, said overall volumes will only expand as existing and new global car makers start exports. “A lot will depend on how volumes stack up at the two biggest exporters,” said.

Car makers said exports will also help them in pushing volumes of their petrol models abroad, demand for which has slumped in India owing to the wide price gap between diesel and petrol.

The current trend is a part of the long-term strategy of companies and is only partially influenced by the ongoing domestic scenario, according to Rakesh Batra, a partner and national leader, Ernst and Young. However, “the additional focus on exports will help them make up for the shortfall in domestic volumes”, he added.

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