Will a slump in the auto industry affect ad spends?

N Chandramouli, Tutu Dhawan and Harish Bijoor on the impact of declining sales in the auto industry and its effect on ad spends

e4m by Dolly Mahayan
Updated: Jul 4, 2019 8:34 AM

The automobile industry is facing a tough time since the last festive season. Automakers have always encashed the festive season, but now dark clouds are hovering over the industry. Domestic car sales in May declined to 26.03 percent over last year to 147,546 units.

According, to data released by the Society of Indian Automobile Manufacturers, the domestic passenger vehicle sales declined 20.55 percent year-on-year to 239,347 units in May. That’s the steepest since September 2001 when passenger vehicle sales fell 21.91 percent, which is worst in 18 years. Even, deep discounts and offers by companies have failed to attract buyers to showrooms.

On the one hand the auto industry is struggling to increase sales, on the other, in the last few months there have been many new launches in the market. Hyundai Motors India, Tata Motors, Kia, MG Motors, and Maruti Suzuki have rolled out their new offerings in the market. With this kind of scenario prevailing in the sector, it’s high time for companies to rework on their marketing strategy to attract more buyers.

CEO, TRA Research, and brand expert, N Chandramouli says, “The concepts of car ownership and mobility are changing completely. The concept of cars has remained almost the same for the last few decades. And even if there were innovations, they were gradual and not dramatic. Until the tech of fast, aesthetic EVs became more popular with the success of Tesla. All car manufacturers will see a sea change in the next few years with EVs becoming more easily available with the FAME II regulations coming in and they should change their communication to mean more than beauty or just comfort.”

As the market is gearing up for the implementation of new emission (BS-VI) norms (the sixth stage of the Bharat Stage Emission norms, based on the European emission norms, which implement strict control over the emission from vehicles.) many companies have announced the removal of small diesel cars from their product’s portfolio.

Auto Expert, Tutu Dhawan feels there is a general insecurity and a kind of apprehension among the public as to what is going to come out of the new technological innovation that is going to come into force from April 2020 and what will be the repercussions on the present ownership of the BS IV vehicles.

“Indians are very conservative and want to take out the last bit of juice from their investments, hence want to wait and see how the new technology is going to shape up,” he adds.

Brand guru Harish Bijoor says, “The auto industry is going through its usual cycle of slump and boom in India. Every 11 years you see a slump. India is a tough market as well, as postponement of purchase is something everyone does all the while”.


Ad Spends

As the industry is dealing with sales slowdowns, will the auto ad spends see a down fall or will it remain the same?

“The industry will curtail spends for sure. They have done just that. They needs to stop advertising and pause to reinvent their core market entry strategy for India. Garnering insight that is uniquely Indian is a core competence for the auto industry to acquire,” says, Bijoor.

However, others will feel it won’t make much of a difference and companies will advertise more to interest buyers.

Dhawan believes, “For the moment the advertising budget and its associated exercise is not going to come down till the entire pattern of sales levels out. In fact I see a very robust push to try and get the market back, and in the process advertising may also see a boost”. 

“An industry which spends more on ads is a sign of an under-confident one. And I do see that advertisements will go up in the next two years reflecting this uncertainty. But I can also almost see that consumer interest in cars will not increase if they do not innovate dramatically”, opines Chandramouli.

Marketing budget

When results are not profitable for the company, due to declining sales in a consecutive term, it impacts the overall marketing budget of the company. Chandramouli agrees. “Marketing budgets are decided as a percentage of the sales, and if sales fall, then marketing falls, leading to lesser sales, and entire categories can fall into themselves,” he says.

“If the present scenario holds longer I guess the car manufacturers will have to put their heads together to work out newer production and sales policies to keep their monetary equation in place,” opines Dhawan.

Revival of the Industry

There are various reasons because of which the industry is struggling. It started last year with the Kerala floods, new policies and multi- year insurance, which have put extra pressure on customers. Also, disruptors like Ola and Uber played a major role in scrapping the market. The industry, which has contributed to India’s economy and considered the fourth largest by sales, needs revival.

Tutu says, “The need of the hour is the awareness and assurance to consumers of the investments and if some taxation/ interest rates relief”.

“The industry needs to think as an industry, and not as individual brands. Invest in insights that are capable of disrupting the market altogether”, adds Bijoor.

“The age of subsidy is gone, and so the age of innovation must come into the auto segment. New products, new designs, never seen before products that are not only in luxury cars, but even in all common vehicles will pick up interest”, states Chandramouli.

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