Suzuki rethinks promise of India’s auto market, and it is not alone

Analysts have said that several car makers are focusing on improving their products instead of chasing volumes. (Reuters)
Updated 08 November 2019

Suzuki rethinks promise of India’s auto market, and it is not alone

NEW DELHI: Suzuki Motor Corp. said it was no longer gung-ho about India’s auto market, the world’s fourth-largest, where it has seen relentless growth in the past seven years. And the parent of the country’s biggest car maker is not alone.

The Japanese automaker issued the warning after it reported a slump in quarterly profit this week on tumbling sales at its Indian unit, Maruti Suzuki, which accounts for half the number of cars sold in India.

“We no longer think that growth in India will be an uninterrupted move upwards,” Suzuki President Toshihiro Suzuki cautioned. Maruti’s sales, which were growing till January, has slipped every month over February-September 2019.

India’s auto sector has gone into a tailspin this year as tight liquidity at shadow banks, high taxes and a weak rural economy have sapped consumers’ buying power.

Global players like Ford, Volkswagen and Fiat are already re-evaluating their strategy as they struggle to make inroads in a market dominated by small cars.

“Car makers are getting very cautious regarding their future investments in India. Most of them are either deferring or just scrapping their India new model plans,” said Puneet Gupta, an autos sector expert at IHS Markit.

BACKGROUND

India’s auto sector is in turmoil as weakening consumer buying power and tighter liquidity has forced global players from Ford to Fiat to re-evaluate their strategies.

Auto executives and analysts point out that some car makers are focusing on their strengths in terms of products instead of chasing volumes with small cars. Some others are taking drastic steps to reduce their exposure.

Ford has agreed to sell a majority stake in its India arm to Mahindra & Mahindra, ending its independent operations in the country after two decades and highlighting the challenges automakers face in growing profitably in Asia’s third-largest economy.

A cocktail of higher taxes under a new goods and services tax regime, flip-flop over electric-vehicle policy, and a boom of ride-sharing firms such as Uber and Ola have all plagued global automakers in India. Not having the right cars and smaller sales network have also hurt, some executives say.

“When you have policy instability it becomes very hard to convince headquarters to invest more in the country,” an executive at a western automaker said.

India is largely a small-car market and that is not a strength for most global automakers, who sell more SUVs and luxury cars elsewhere such as in China and the US- the world’s top two car markets, the executive added.

Western automakers had to design products specifically for India which is an expensive exercise, said V.G. Ramakrishnan, managing partner at consultancy Avanteum Advisers.

“Many chose a mass-market strategy instead of a niche one,” and are dialling back to focus on specific segments, he said.

Volkswagen has put its sister company Skoda in charge of India strategy and will focus on SUVs. Fiat too has put SUV-maker Jeep in charge of driving sales in the country.

Demand for SUVs in India is growing faster than some small car segments, prompting even the likes of Maruti that dominates the small-car space to look at launching SUVs and crossovers.

Honda is re-evaluating its India plans and may convert one of its two plants into a research center, local media reported.

Toyota and Suzuki have formed an alliance to share supply chain costs and develop new vehicle technologies together.

“Automakers want to exploit their existing resources, minimize their costs and maximize their returns,” Gupta said. 


Oil prices rise as faith in supply cuts grows

Updated 37 min 55 sec ago

Oil prices rise as faith in supply cuts grows

  • Producers are following through on commitments to cut supplies as fuel demand picks up with coronavirus restrictions easing
  • OPEC+ countries are due to meet again in early June to discuss maintaining their supply cuts to shore up prices

NEW YORK: Oil prices rose on Tuesday, supported by growing confidence that producers are following through on commitments to cut supplies and as fuel demand picks up with coronavirus restrictions easing.
Brent crude futures were up 45 cents, or 1.3%, at $35.98 a barrel by 1:09 p.m. EDT (1709 GMT). US West Texas Intermediate (WTI) crude futures gained 89 cents, or 2.7%, to $34.14.
The Organization of the Petroleum Exporting Countries and other leading oil producers including Russia, a group known as OPEC+, agreed last month to cut their combined output by almost 10 million barrels per day in May-June to shore up prices and demand, which has been hit by the coronavirus pandemic.
Russian Energy Minister Alexander Novak is due to meet oil major producers on Tuesday to discuss the possible extension of the current level of cuts beyond June, sources familiar with the plans told Reuters.
The RIA news agency said Russian oil production volumes were near the country’s target of 8.5 million bpd for May and June.
On Monday, Russia’s energy ministry quoted Novak as saying that a rise in fuel demand should help to cut a global surplus of about 7 million to 12 million bpd by June or July.
OPEC+ countries are due to meet again in early June to discuss maintaining their supply cuts to shore up prices, which are still down about 45% since the start of the year.
“The 16 million bpd oversupply in crude during April could be reversed altogether by June, helped by a 4 million-bpd recovery in crude demand and a 12 million-bpd cut in crude supply,” said Bjornar Tonhaugen, head of oil markets for Rystad Energy.
“OPEC+ is pulling the most weight by far, effectively reducing supply by nearly 9 million bpd while non-OPEC+ crude supply is down by more than 3.5 million bpd from March levels.”
In an indication of lower supply in the future, data from energy services business Baker Hughes showed that the US rig count hit a record low of 318 last week.