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Amidst the falling sales in Indian auto industry, some cars still enjoying long waiting periods

In last few years, the Indian automobile industry has been through all phased of market, be it steep slowdown in sales in late 2008 and early 2009, or be it massive growth in calendar year 2010. But the situation was never the same as it is going through at present. To surprise of many, the Industry is witnessing two scenarios simultaneously, which were never seen together in the long history of Indian auto market. While most of the car makers are struggling with slowdown in sales, there are a number of car models which are still very high in demand and enjoying high waiting periods of up to 8 months. Who would have expected that an industry where the sales are continuously going down since last 6 months, one will still find a range of cars that have a large number of buyers are waiting for.

The recent slowdown has shown no impact on the sales of these high in demand cars that comprises of premium hatchbacks like Maruti Swift Diesel and Honda Brio, entry level sedan Maruti Swift Dzire Diesel, mid size sedan Hyundai Verna, multi utility vehicle Toyota Innova, Sports Utility Vehicle Toyota Fortuner and Mahindra XUV 500, etc. Surprisingly, at a time when high interest rates and continuously rising petrol prices are keeping the buyers out of the showrooms, the demand for these few volume driving models is so high that buyers are even ready to pay extra over the cost of the vehicle to get the delivery of the their chosen car ahead of schedule.

Surprised with these two contradicting equations, Shashank Srivastava, chief general manager (sales & marketing) at Maruti Suzuki, said that the ongoing pattern is the most bipolar demand pattern he has seen in his whole carrier. On the other hand, Hyundai India’s sales and marketing managing director, Mr. Arvind Saxena said that the customers are likely to find more value in one car, and are even ready to wait for months."

If we talk about the factors that are causing this kind of extreme bipolar demand pattern in the Indian market, one factor to which most market analysts see as a major reason behind this contradicting pattern is the wide gap between the price of petrol and diesel fuel prices, due to a number of recent hikes in the price of petrol. At present, the gap between the price of petrol and diesel is over Rs 27, in the country. The increasing petrol price has caused a major shift of buyers towards the diesel variants of the cars. On the other hand, the car maker are not ready with enough capacity to deal with this sudden surge in demand for diesel engines in the Indian market, resulting in a long waiting period for the customers.

However, when we talk about the cars like Maruti Swift and Hyundai Verna, not only the diesel versions but even the petrol versions are very high in demand. For instance, while the diesel version of Hyundai Verna model has a waiting period of 3 to 7 months, the waiting period for petrol version of the car is 2 to 4 months. Similar is the case with Maruti Swift hatchback which is enjoying a long waiting period since its launch in the Indian market in year 2005.

In general, the car makers keep about 15 to 20 percent of flexibility in the manufacturing capacity that come handy when the demand for a particular model is goon in the market. But when demand crosses this good level and surges even further, it becomes very difficult for the car makers to extend the production capacity further. According to Hyundai MD Mr. Arvind Saxena, the car makers can not make any product endlessly. He added that the demand for a particular model surges far ahead of the company’s initial projections, the manufacturer face a number of production constrain to meet the demand.

According to Maruti’s Mr. Srivastava, Increasing the production capacity after a certain level needs a capital investment, which can sometimes, takes three to four years. Thus, the car makers tend to tackle this increased demand with enhancing the efficiency of their existing production plants. However, this can provide only a limited flexibility in production to them.

Take the case of recently rolled-out sports utility vehicle Mahindra XUV 500, which marked its debut in the Indian auto market on 29th September, 2011. To surprise of many, the company was forced to stop receiving bookings for this high in demand SUV within 10 days of commencing bookings. In these 10 days, the company received over 8,000 bookings for this model, which was 4 times the company’s monthly production capacity of 2,000 units for Mahindra XUV 500.

The Indian unit of the leading Japanese car maker Toyota took the similar steps by suspending the bookings of compact luxury SUV – Toyota Fortuner – for a few months after receiving over 5,000 bookings for the SUV with a few days of its launch.