A CRISIL Research study shows margins of car manufacturers will be under pressure in FY 2010-11 despite sustained growth in compact car sales volumes. Although total sales of compact cars are expected to increase by 11-13 per cent in FY 2010-11, sales per model will be 6-7 per cent lower than the previous year due to growing competition and new model launches. With the decline in sales per model, car manufacturers will face increased cost pressure.
“While total sales in the compact car segment have increased 14 per cent each year from 2006-07 to 2009-10, average sales per model have declined 12 per cent,” says Mr. Manoj Mohta, Head – CRISIL
Research. Over the past five years, competition has been intensifying in the compact car segment with an increase in the number of models and manufacturers. The number of compact car models increased from 9 to 21, and the number of players from 5 to 8, between March 2005 and March 2010. The launch of four new models and entry of three players this fiscal will further intensify the competition.
Cost pressure has been mounting on car manufacturers with a decline in sales per model. Costs have increased as manufacturers have stepped up product development expenditure, and incurred higher marketing and selling expenses per unit of sales. Also, manufacturers have been offering more value-added features in compact car models such as power windows, power steering and electronic devices to maintain market share. These factors have added to the manufacturers’ costs without a commensurate increase in realisations.
“To maintain margins and benefit from scale efficiency, car manufacturers would need to increase sales per model in the compact car segment rather than focus on overall sales by introducing more models,” concludes Mr. Manoj Mohta.
Source: Press release by CRISIL Research, dated 26.04.2010, Mumbai