In the Interim Budget, which was rolled out in February 2014, the then Finance Minister P Chidambaram had cut the excise duty by 3-6 per cent across different sets of vehicles in the automobile sector. The duty cut was made to give a boost to the auto sector which has been reeling under sluggish demand, steep sales and high manufacturing bottlenecks.
Ironically, the development had affected the sector in a reverse way which also had to deal with stuck inventories. Eventually, auto manufacturers had to absorb the financial liabilities of the dealers as the dealers had to sell the stuck inventory at the reduced prices. Most of the auto companies in the past few quarters have seen a huge dip in sales YoY.
However, the auto sector is expecting a revival through key reforms now that the Narendra Modi-led National Democratic Alliance (NDA) is all set to form a stable Government.
So, does the optimistic hope for the future result in a surge of media spend? Major auto players had spent heavily during the elections, either through buying ad spots on TV, sponsoring exit polls, print ads, digital ads, and so on. Now that IPL (which has seen immense participation from auto players in the past) too is reaching the final stage, will the sentiment of increasing media spend within the sector foster? Will we see more players spending on the media in the coming quarter?
The automobile sector is generally perceived and considered to be a male dominated sector. Therefore, most auto players have been consistently advertising on male-oriented properties such as news and sports. Hyundai was the title sponsor on Star Sports for the recently concluded T20 World Cup. Other major auto players too bought ad spots. In IPL, TVS Motors is already one of the associate sponsors on Set Max, while we have seen other major two-wheeler companies – Bajaj and Hero – buying ad spots. Digital broadcaster Starsports.com has got Toyota Motors as one of the associate sponsors. The spends from the auto sector have increased since the tournament is now back in India and secondly, after the conclusion of the Lok Sabha elections, marketers expect the viewership of IPL to increase drastically. Analysts and marketers believe that such spends will increase in the coming days.
MV Krishna, CMO, Piaggio Vehicles remarked, “IPL is a mass property, which is used by auto players to grab attention. Spends, therefore, are sure to increase. It is expected that since the stable Government is there at the Centre, reforms will be initiated and some key pending decisions will drive the economy. The driving of the economy will not only increase the prospects of the auto sector but will also enhance the sentiment of the market. These chain of events will drive media spends. The Q2 of FY2014 will see more spends from the sector.”
However, some analysts feel that there is no relation between media spends and reforms. Yaresh Kothari, an auto analyst with Angel Broking, felt that spends by any auto player increase when there is a new launch, but remain normal in other cases. “The two-wheeler brands are advertising more these days because of the marriage season prevailing in the North India. In any case the marketing budget for any auto player is 1-2% of the overall revenue. When new launches are made this percentage goes up. I expect that there will be an increase in spends from the sector in Q2 only because many new launches are scheduled,” Kothari said.
After IPL and the Elections, FIFA World Cup is scheduled in June and it is expected that marketers will be spending extensively on the property since the tournament also has a huge viewership in India. Spends, therefore, should not be subdued in the coming quarter.
Manohar Bhatt, AVP - Marketing, Maruti observes “everything would depend upon what is the state of the economy. Auto sector sentiment is subdued because of the low GDP growth, currency devaluation and supply side bottlenecks. Slow economy also curtails the spending power of the consumer. In my view everything would depend upon how the overall economy is handled by the new Government. That would ultimately decide in which direction would media spends go.”
The overall sentiment in the business community is that the new Government is business friendly which would help the auto sector. The sector heavily depends on the allied sectors like manufacturing and capital goods. Coupled with this the sector also leans on exports, and prices of iron and steel which fluctuate regularly. Since May 16 the Rupee has been gaining value steadily and this is also driving the sentiment at the stock market.
Sources indicate that some more auto brands should be buying ad spots during IPL on broadcast and digital mediums. As the tournament moves ahead the inventory costs are also likely to go up especially during the slog matches. The Q2 is the season of launches and Q3 is the festive season. The media spends from the auto sector therefore are likely to increase which would be a manifestation of key reforms, new model launches, big media properties and above all bullish consumer sentiment.