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Home > Business > Special

Auto sector: A year of hits and misses

Rajkumar Leishamba & Pankaj Doval | December 24, 2005

One of the most violent labour unrest, which shook the entire country, rattled the success story of the Indian automobile industry in 2005, a year which saw the high growth rates peter down and players grapple with rising input prices.

After being credited with reviving the Indian scooter market and hailed as one of the big success stories in the auto industry, Honda Motorcycle and Scooter India went through possibly one of its worst times after a worker strife at its factory in Haryana took a an ugly turn.

As the gory images of Haryana police personnel mercilessly beating up scores of the company's striking employees were played out non-stop on television screens and newspapers, the incident snowballed into a big political controversy.

The episode saw a knee-jerk reaction from the Japanese ambassador, who said it could affect the country's foreign investments to India, prompting the Indian government to dub it as an "isolated" incident.

The matter was finally resolved, but not before nationwide protests and debates, and intervention by none other than Prime Minister Manmohan Singh.

The strike at Honda was not an isolated incident of discontent in the industry with other companies like Omax Auto, Apollo Tyres, Toyota Kirloskar and Mico Bosch also struggling on the industrial relations front.

The tough times due to these unwanted aberrations, notwithstanding, the year had its own share of highs, one of them being the statement of Finance Minister P Chidambaram at the annual convention of Society of Indian Automobile Manufacturers.

The finance minister came up with a sure booster dose when he hinted at tax incentives for small cars. "We will revisit the question of taxation on small cars at the earliest opportunity," Chidambaram told CEOs of automobile firms.

"Small car manufacturers are looking at making India a base for the global market. We have to keep pace with plans aimed at having small-car plants," he said, in between cheers from the industry captains.

The government taxes automobiles at 24 per cent, which is the upper end of the excise duty structure. To this are added other taxes, including natural calamity cess, education cess and VAT.

The year also saw a blockbuster model hitting the Indian roads in the form of Suzuki's Swift. Positioned in the premium hatchback category, the car proved to be a darling for new car buyers, the high demand even catching Maruti by surprise.

The company had to increase production for the model that captured the imagination of aspiring Indians and saw as many as 18,000 bookings within two weeks of launch.

But even while Swift was the runaway success of the year, 2005 also saw some of the world's top luxury brands queuing up for the market.

The grandeur of Rolls Royce made a return to India after a gap of 50 years with the company bringing in the 'Phantom', sporting a hefty price tag of Rs 3.5 crore (Rs 35 million).

Other high profile launches of the year included Bentley Motors' 'Continental Flying Spur' (Rs 1.7 crore), Audi's A6 version (Rs 42.5 lakh) and German car major Porsche AG's convertible sports car 911 Carrera Cabriolet (Rs 75 lakh plus).

A summary of 2005 would, however, be incomplete if the controversy surrounding German car major Volkswagen's is missed. The company, negotiating with the Andhra Pradesh government for setting up its plant in the state, was caught on the wrong foot when its pointsman for the country Helmuth Schuster was accused of corruption.

The German company, on behalf of which Schuster received money from the Andhra government, had a tough time in squeezing out of the situation, though it finally managed to mend its relations.

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