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Year of disappointment for auto industry

Last updated on: December 28, 2008 11:37 IST
"A promise is a promise," said Ratan Tata while unveiling the Nano at the beginning of the year, putting India on the global automotive map. However, the year 2008, which began with a bang, ended with a whimper, with controversy and the downturn dogging the auto industry.

The world's least priced car, the Nano, was supposed to start carrying the common man of India by Durga Puja, but the Singur controversy ensured it won't happen till next year.

High interest rates and lack of retail finance, coupled with rising input costs, threw plans out of gear for automakers and in November the industry saw the worst ever monthly vehicle sales with a decline of 17.98 per cent.

It, however, was not a year without its share of bright spots. The Nano of the Tatas inspired global auto majors like Renault, along with Bajaj Auto and Hyundai, to choose the country as their ultra low-cost car hub, while Japan's Honda launched the first hybrid car -- Civic Hybrid -- in the country.

Proving to be the star attraction of the 9th Auto Expo, the Nano helped the biennial fair draw 1.8 million people, generating a record business of about Rs 20,000 crore (Rs 200 billion) through 2,000 exhibitors, including over 65 vehicle manufacturers worldwide. Of about 35 model launches, the Nano was the cynosure of all eyes -- domestic and foreign visitors alike.

Other car manufacturers like General Motors, Ford, Volkswagen, Toyota and Honda jumped into the compact car bandwagon after the government reduced excise duty on small cars to 12 per cent from 16 per cent in the Budget.

Car market leader Maruti Suzuki, on the other hand, unveiled the 5th global model of parent Suzuki, the hatchback A-Star, which would be manufactured only in India.

While small car makers were happy with the government's move to cut excise duty, big-car makers felt discriminated against when an additional excise duty ranging from Rs 15,000 to Rs 20,000 on large cars with an engine capacity 1,500 cc and above was slapped. But they were relieved when the four per cent cut in CENVAT came early December.

The moment of triumph for the Indian auto industry was perhaps when Tata Motors closed the $2.3 billion Jaguar-Land Rover deal, although the Tatas had to face financial difficulties in keeping the acquired entities running towards the end of the year as the global economic downturn tightened its grip on the auto industry.

For the Tatas, it was not only the economic downturn that posed problems. Mamata Banerjee of the Trinamool Congress ensured that the Nano would not keep its tryst with the people of India. There was violence over land acquisition for the project at Singur in Bengal, where the mother plant of the Nano was coming up, and some land-losers committed suicide.

While the Trinamool Congress refused to budge from its stand, intervention by West Bengal Governor Gopal Krishna Gandhi too proved futile, which finally forced Tata Motors to pull out of the state and choose Sanand in Gujarat.

The end of the Nano project's two-year stay in Bengal meant a new beginning for it in Gujarat, where Tata Motors announced Rs 2,000 crore (Rs 20 billion) investment to set up the mother plant at Sanand to produce 250,000 to 300,000 cars annually and the production can go up to 500,000 cars a year.

The controversy that surrounded the Nano project thankfully didn't deter global auto majors from investing in India. The world's largest carmaker by sales, Toyota, announced investing 68 billion yen (about Rs 32 billion) in setting up a second plant in India as part of plans to introduce a 'strategic' small car in the country by 2010.

Toyota, which runs Indian operations through a joint venture with the Kirloskar group, has decided to set up the new plant at its existing location in Karnataka.

US carmaker General Motors has also planned to launch a global small car in India in the next two years, besides gearing up for making the country an export hub for small cars. It committed an investment of $500 million in its second plant at Talegaon in Maharashtra for a car manufacturing facility and an engine and transmission plant.

Similarly, another US carmaker Ford Motor Co said it would invest $500 million in India in setting up a greenfield small-car plant with a capacity of 200,000 units and expanding the engine production capacity to 250,000 from the current 60,000 units. It aims to enter the Indian small car market by 2010.

Meanwhile, German carmaker Volkswagen hiked its investment in India to 580 million euro (about Rs 36 billion) from the initial 410 million euro.

Renault and Nissan also committed an investment of Rs 4,500 crore (Rs 45 billion) for their car plant in Chennai, expected to begin operations in 2010 with an annual production capacity of 400,000 units. This was after Mahindra & Mahindra decided to exit their tripartite joint venture citing lack of synergy.

However, towards the later part of the year, as the economic downturn became more severe, the two companies decided to hold back the investments.

Honda, which also initially said it would invest Rs 1,000 crore (Rs 10 billion) in its second facility in Rajasthan, said it was putting on hold some of its investment there due to the slump in the market. It, however, didn't alter its advanced date of rolling out the much-awaited premium hatchback Jazz by June.

Ashok Leyland, on its own, also announced investing Rs 3,000 crore (Rs 30 billion) in expanding the capacity of its new plant in Uttarakhand and engine development, while looking to set up assembly units in Egypt, Bangladesh and South Africa.

Another milestone in the Indian automobile industry in 2008 was former Maruti Suzuki Managing Director Jagdish Khattar's foray into organised multi-brand car sales and service business with an investment of Rs 1,000 crore (Rs 10 billion)m over the next five years.

Khattar, who formed a new company -- Carnation Auto -- plans to launch its service and sales network at 100 locations in 65 cities across the country over the next five years.

The tough year, however, didn't deter super luxury brands like the Bentley and Rolls Royce from launching expensive cars. Bentley brought Continental Flying Spur, priced at about Rs 2.5 crore (Rs 25 million), while Rolls-Royce said it would launch a new model, Phantom Coupe, expected to be priced at over Rs 3.5 crore (Rs 35 million).

But the best piece of news came from Volkswagen, which said it would bring the original 'people's car' -- the Beetle -- in 2009. It would be interesting to watch out for next year when the Nano drives lane to lane with the Beetle. Yes, there are promises to keep!

Trideep Lahkar & Rajkumar Leishemba in New Delhi