Hot wheels hit supply woes

Hot wheels hit supply woes

Pankaj Doval, TNN, May 31, 2010, 01.17am IST

NEW DELHI: Dinesh Prabhakar faces a strange predicament. A young corporate executive who has tasted success early, Prabhakar wants to announce his arrival in style. In his late twenties, Prabhakar wants to match his success with a stylish and powerful set of wheels — a Toyota Fortuner that costs Rs 20 lakh. But despite having the money, he still can’t have it.

It reflects the rapidly changing dynamics of the Indian auto industry. What was once a solely demand-driven business is gradually witnessing a new phenomenon — long waiting periods. It’s almost as if the industry has gone back to the pre-liberalisation days of waiting period on cars. Marketing heads of car companies often complain in private about how they get calls from offices of ministers and bureaucrats seeking early delivery of cars. “But it is not just possible, we do not have enough cars to match the demand,” says one of them
in exasperation.

For the record — Toyota has stopped accepting bookings for the Fortuner SUV since January. The bookings opened only for a few weeks and remain shut even now. “We just don’t have enough production to match the demand that has been phenomenal and beyond our expectation. The bookings have been closed as we do not want people to wait for delivery endlessly after paying hefty booking amounts,” says Sandeep Singh, deputy managing director (marketing) at Toyota Kirloskar Motors.

Currently, the waiting list on the Fortuner runs for over three months and the company hopes to start accepting fresh bookings only around July, by when it hopes to trim the backlog substantially. “We have ramped up the production capacity of the Fortuner and are currently doing around 950 cars monthly. But even this is not enough,” Singh adds.

And Fortuner is not the only vehicle on the coveted ‘in the queue’ list. Maruti’s Swift and Dzire are among the vehicles that have enjoyed long waiting periods for years now, and so are some of the new ones that have hit the market recently. These include Volkswagen’s Polo, Ford’s Figo and the Beat compact and Cruze sedan from General Motors.

“The demand has been overwhelming in the market, especially for many of the newer models that were keenly awaited. It has been more than what we anticipated,” says Mayank Pareek, managing executive officer (marketing and sales), at Maruti Suzuki.

Maruti has a waiting list on some of its hot sellers for a long time even as it tries to push the sagging models. While certain variants of the Swift and Dzire carry waiting period of around two months, the company’s new multi-utility vehicle Eeco — that was priced attractively under Rs 3 lakh — also has added a waiting list on it.

“The wait on the Eeco is around 4-5 months now. While we had initially expected to sell 2,000-3,000 units monthly, but the demand has been around 6,000 units, which is much more above the estimates,” Pareek says.

GM’s marketing head Ankush Arora says he faces a similar situation on the Beat and Cruze, the new models launched by the company. And the waiting is not confined only to cars. Royal Enfield’s Classic500 model —that was launched in India in November last year after making its debut in the European markets about a year back — is one such hot seller in the two-wheeler space. The bike, which carries a Rs 1.25-lakh price tag, has been on the wish list of youngsters, biking enthusiasts and celebrities, leaving manufacturer Royal Enfield with a long waiting list.

“The waiting list for the Classic500 model is around 6-8 months. And even as we try and boost production, we have our own limitations as the bike carries a number of specially painted components that take time to be delivered,” a senior company official said.

A senior company official also pointed out that the model has been a hit for the company from the word go and received as many as 1,000 bookings in just two weeks of its launch. The company has made over 5,000 deliveries since November and averages around 1,000 in production monthly, which it plans to increase now.

Though long booking periods mean high demand, auto makers are not happy. “It is not good and we are not at all pleased with the situation. A customer should get the delivery of a vehicle within 2-3 days of booking. We are here to sell a car and not just to make bookings,” Maruti's Pareek says.

Most marketers say that a long waiting lists also pose a threat as buyers may not be ready to queue up for a model but may switch over to the one available off-the-shelf. “It is not healthy and we not only run the risk of losing a customer but also invoking customer dissatisfaction,” GM's Arora says.

He says that a waiting list running over 20-25 days is not ideal and can hurt the brand as well as the company. “We have been pushing for higher production to catch up with the backlog fast,” Arora adds. Ford, which has around a month’s waiting on the Figo, is all set to add a new production shift at its factory to add to the churn-out and keep cars ready at showrooms.

Analysts say that a revival in the car market and a general tendency to upgrade to newer models has been among the reasons fuelling the waiting lists and the sudden demand.

There have been upgrades even within segments, like the compact car market. Marketers estimate that 58% customers of small cars change models within five years and have been upgrading from the low-end compacts to the high-end ones. This practice is only fuelling demand and affecting supply.

There was a time when Premier Padmini cars and Bajaj scooters were available at a hefty premium because of the long waiting list. But that was because of production controls imposed by the government. But in this day and age when there are no production controls, it's probably only a faulty assumption of demand that has created shortage of certain models in the market.