Vol. 2 :: No. 12 November, 2000 (Kartik-Mangsir)

Cover Feature

Auto Trends Growth With Hiccups

On the occasion of the 2nd Auto Show, 2000, Business Age analyzes some recent trends in the Rs. 5 billion per annum business of automobiles in Nepal

If the range of choice available for the buyers can serve as a guide, Nepal’s automobile business is quite mature – almost to the level of the neighbouring countries. Any vehicle brand available in India is also available in Nepal, and most of the world’s auto-makers have manufacturing facilities in India.

Moreover, Nepal also allows import of automobiles from other countries thus widening the range of available vehicles even further. A Nepali manufacturer also has emerged on the scene offering people a "made-in-Nepal’ brand of utility vehicle (see interview with Surendra Golchha in page 24).

The market is growing in such a way that vehicle-dealers who used to depend only on direct-marketing strategy till recently have started advertising campaigns somewhat similar to marketing mass-consumption items. A recent ad by AVCO International, the dealer of Hyundai vehicles, offering lucky draw coupons to the buyers of its brands may serve as an example to indicate this trend. If you buy a Hyundai car you may be lucky enough to win another car free.

Another recent experiment in new technique of vehicle marketing in Nepal was the Yamaha YBX Cross-country – a non-stop drive on Yamaha YBX motorcycle stretching over 1106 km from Birtamod of Eastern Nepal to Mahendranager in the Far West. According to Vishnu K. Agrawal, the Managing Director of Morang Auto Works, the dealer of the bikes in Nepal, the objective of the cross-country was to establish that Yamaha YBX is a powerful 4 stroke bike. And that was proved when the two participating bikes covered the distance without switching off their engines. This campaign has also indicated the possibility of other motorsports being developed for Nepali roads.

Whatever the macro-economic indicators may be showing about the per capita income of Nepali consumers or the rate of economic growth in the country, the expansion of automobile business indicates that more and more of Nepali people are going towards owning a motor vehicle – whether it is a four-wheeler or a two-wheeler. Says Suraj Vaidya, president of Vaidya's Organization of Industrial and Trading House (VOITH), a business conglomerate that deals in Toyota vehicles through its unit United Traders Syndicate (UTS), "We are surprised at the purchasing capacity of the Nepali people".

The official data about vehicle registration published by the Department of Transport Management also support Vaidya’s view. Though a long period after January 2000 saw very few motor vehicles being imported due to the confusions following introduction of Nepal Vehicle Mass Emission Standards, 2056, (NVMES), the total number of new registrations was still higher in the fiscal year 1999/2000 than in 1998/99. It may be easily surmised that the number would have been higher had there been no such change in the regulations.

Changing life-style may be behind the upsurge in the demand. This is suggested by the growing number of ladies driving their own vehicles-especially the lighter category of two-wheelers. The finance companies with their aggressive marketing of vehicle-financing schemes have provided support to the growing demand. Almost all of the vehicle dealers have tied up with one finance company or the other to help their customers own a vehicle, thus boosting their own sales. Some such finance companies are in fact promoted by the same business houses that also deal in vehicles. For example, Jyoti Group that has two vehicle marketing units – Bhajuratna Agency (P) Ltd. and Syakar Co. Ltd. – also has promoted Bhajuratna Finance Company.

The growth, however, seems to be concentrated more on two-wheelers and small cars. By ownership type, private and commercial vehicles exceed the other categories. Geographically, the central development region and specifically the Kathmandu valley has experienced upsurge in demand for the simple reason that almost all of the vehicle-demanding population is concentrated here. According to Department of Transport Management, the number of various types of vehicles registered in Bagmati Zone (which largely means Kathmandu valley) had reached 148,535 by mid-July 2000. A recent study (October, 2000) reported that this number has further increased to 154,785.

As a result, the problem of vehicular emissions and traffic jams are frequently being raised as urgent issues. That partly explains why the demand for two-wheelers and small cars is growing faster than for other categories. Similarly, they also need less operational costs as they are more fuel-efficient and maintenance costs are lower. As Syakar Co., the dealer of Hero Honda brand of motorcycles, reports while it sold about 4,800 units in 1998, and about 6000 units in 1999, the sales have jumped now to abour 1000 or 1200 units per month in average. Six months ago, the average was about 700 or 800 units per month, says Saurabh Jyoti, director of Jyoti Group.

Growth of vehicle sales has prompted the authorities to impose one or the other type of restrictions on the entry of additional vehicles into Kathmandu’s city areas.

This implies that the business growth has not been going smoothly for automobile dealers who have been facing one or the other type of hiccups in their trade.

The dealers point out that automobile use should be seen as an indication of economic development that is going on. Vehicle use grows with growth in the economy or advancement of the society. As such, putting restrictions on the growth of vehicle number is not the solution to traffic or environment problems. Alternatives have to be explored. But the government’s decisions are guided by either the revenue that it can raise from this business, or by sheer ad hocism. As Lok Manya Golchha, the newly elected president of Nepal Automobile Dealers Association (NADA), points out, while the import duty is generally being revised downward in most of the categories of imports, vehicles, particularly the cars, are not receiving such a favour. The 10% rebate that was provided in import duty last year in their import under certain circumstances, has been removed this year.

This is a sector which pays the highest rate of taxes and duties to the government on its turnover, the dealers point out. The rates add up to a whopping 156% of the basic price in case of most of the vehicle categories. But this tax has not been used to expand infrastructure, the dealers argue. "Today, car is becoming a need for the people and that should be welcomed, because it is contributing significantly to the national treasury. But that income has not been transferred back to infrastructure development", says Vaidya.

Citing examples of the ad hocism, the dealers mainly point out at the emission regulations and traffic management. The authorities go on frequently changing the rules and standards without carrying out enough prior homework. The void created by removal of Vikram tempos from Kathmandu took about a year to be filled up.

Similarly the decision to remove all two-stroke vehicles in still not implemented. Likewise, the NVMES, introduced in the beginning of 2000 was revised within three months citing practical reasons but inviting strong criticism from the environmentalists. In the process, a number of confusions developed and some unscrupulous elements in position of authorities had opportunity to fish in the troubled waters, as reported time and again in the press.

Since the introduction of the NVMES, some dealers were unable to sell even a single vehicle till October. As a result, the 2nd Auto Show scheduled earlier for March-April 2000 was postponed and is being held only now. The scheduled dates (November 15-19) were further shifted one week because of the two day general strike (Bandh) called by some opposition parties.

Brands of Lubricants Available in Nepal

Sales of Agni Incorporated
(Dealer Mahindra & Mahindra)

Sales of Hyundai Vehicles

By Madan Lamsal

"Give duty concession to replace old vehicles"

Lok Manya Golchha
President, Nepal Automobile Dealers Association

What are the problems vexing the sector?

There was the problem of Euro I emission standard earlier but that I believe has been resolved. There is the problem of VAT especially related with stocks of spare parts. But we are talking with the government on that. Apart from that, there are not many serious problems.

What are the changes developing in this business in Nepal?

In comparison to about five years ago, people are now more open to buying vehicles. This is perhaps to do with the poor public transportation system here. Manufacturers are also sending newer models and designs of vehicles.

The issue of environment is gaining importance. What is NADA doing to address various environment-related problems?

Vehicles that are Euro I and Euro II complaint are now coming in. But unfortunately, the unleaded fuel that is required is still not available here. So just bringing in environment friendly vehicles will not serve the purpose. The government has to make good quality fuel available. We have also suggested that the government give duty concessions to owners of old vehicles to buy new vehicles. This will result in owners giving up their old cars for newer ones, thus eliminating environment pollution caused by old vehicles.

Is there any suggestion from NADA for better traffic mana-gement?

We have not had any talks as such. But in case of Kathmandu’s city area, changes can be done in the one-way and two-way routes. For example, the Ratna Park and Bus Park areas are overcrowded. So if the road in front of the RNAC building is opened for two-way traffic, we believe that load can be reduced. The road leading to Tripureswor from New Road has also been widened. Two-way entry could be allowed. But we have not had real talks with the traffic authorities as it has not been too long since I took up NADA Presidentship, and we have been busy dealing with other issues.

Our main job is to address the problems that may arise in the sector regarding inflow of vehicles, availability of spare parts and so on. We will also ensure that the problem faced by any businessman in this sector is tackled. We will also put forward our opinions and suggestions before the government regarding development of the sector.

"Need 100% solution"

Suraj Vaidya
President, VOITH

How do you comment on the way vehicles are being marketed here?

What we have noticed is that the buying capacity of the private sector is amazing. Earlier when there was no environment law, a lot of reconditioned cars were coming in. They were not choice of the people, but they scored because of price economy. If the car looks good, people tend to go for it. But that may not be good for the environment. A thought has been created by the auto show that the consumer has the right to demand for the best, and choose the best. What the auto show has done is that after the second-hand cars have been removed, it has given tremendous opportunity to the public to go for wider selection of brand new cars. And the public is also getting the best product for their investment. Moreover, pollution has also been taken care of. So the auto show has changed the marketing strategy altogether.

How is the growth potential in this business looking at the condition of roads in the country?

The fact that more and more vehicles are coming in indicates that there is economic growth in the country. But most of the roads here are creditable to the Rana regime. At the most, in the last 50 years we have made those roads a little wider. But we have not made new roads. Instead, we chose to create by-lanes. As a national infrastructure policy, the government has given a policy, but it has been given the least emphasis. And development cannot go on without basic infrastructure. Today car is becoming a need for the people. And that should be welcomed because it is contributing significantly to the national treasury. But that income has not been transferred back to infrastructure development.

What is your comment on the way the Nepal Automobile Dealers Association (NADA) is functioning?

At the moment, I hope that the new team of NADA takes the issues as a common agenda, not as an individual agenda, as to how they should form a norm that is fair for all cars. It should not be done under political pressure and it should be good for the country in that it should ensure extremely low vehicular emission. The norm that exists at present is more a copy of some other norms (Euro I) and talks about COP which is the biggest problem in India. The Toyota cars are being used in the most environment-conscious countries in the world. We are not in a position to demand manufacturers to document their products according to Nepal’s policies. This is to say that the policy here is not clear. And I am hoping that the new team at NADA ensures transparent implementation of the policy so that the consumers benefit.

What is Toyota going to focus during the 2nd Auto Show?

We support the decision that the government makes and the initiatives that it takes, for example about the emission standards. The process might not be ideal but the concept is a good one. The procedure to realize that concept needs improved and that is where we think we should contribute. And in pursuing the concept, we should not be satisfied with just one step. For example, with the ban on Vikram tempos, we reduced the level of pollution in Kathmandu by 60%. But 40 percent still remains. And we cannot be happy until we have a 100 percent solution. If we are causing air pollution through vehicle emission, we will try and do as much as possible. What we also want is to address the quality of fuel. We will try and make the people aware that besides the car, fuel is also important, thus linking all these important aspects. What I have noticed during shows conducted here is that all people are concerned about is selling their products. At Toyota it is important to sell a concept of why environment is essential.

We are slightly more expensive compared to other vehicles. And these shows allow us to convince consumers as to why we are that little bit expensive. This will enable us to display our strengths.

What are those strengths of Toyota?

For example, the engine of the 2000 series won the best engine of the year award. So we are not only giving Nepal the third generation vehicle but the newest vehicle also. In any other car, the body has been changed but it still carries the old engine. Also, when prices of petroleum products are rising, we guarantee that our car will give you a mileage of between 18 and 20 km to a liter. That is the highest fuel efficiency a car can give you. When we say we give a one-year warrantee, we give full warrantee. We are even thinking of giving three years warrantee.

Hulas Sherpa Euro I Complaint

Surendra Golchha
MD, Hulas Motors (P) Ltd.

What is the latest development on Hulas Sherpa?

We are also planning to introduce a small car which is very cheap and would cost around Rs. 4,00,000. Sherpa costs around Rs. 6,10,000 or so depending on the model and is a full capacity, diesel engine, heavy-duty vehicle.

How many units have you sold and exported?

We have sold about 100 units of this vehicle. We have not gone into exporting yet. But we will perhaps do that the following year if things work out as planned.

Which markets are you eyeing?

Bangladesh and Sri Lanka.

Who are your major clients so far?

Our clients are individuals rather than any company or group. Eighty percent of our sales is accounted for by personal purchase.

What improvements have you introduced in the vehicle over the last one year?

We have improved the body finishing and the sitting arrangements. There was the problem of leg space previously, we have now addressed that. The power of the engine has been enhanced from 32 to 46 D. The vehicle is now Euro 1 complaint. The brakes have been highly improved, it now has power brakes. Moreover, it can now go up to a speed of 110 km per hour. It is now equipped with hydraulic clutch. The steering system has also seen improvements. We have introduced the Limited Slip Difference (LSD) system which is very good for gravel roads and muddy surfaces. Except for TATA Safari, I am not aware of the LSD system in other Indian cars. This system has really strengthened our market.

In the past, you were complaining of negative government policy towards domestic automobile manufacturers. How changed do you find the attitude now?

I don’t see the government doing much to promote local industries. There is no difference being an importer or a manufacturer.

What is the advantage of manufacturing a vehicle here rather than importing one?

Firstly, what happens when we assemble cars here is that we do our own designing right from scratch. This means that we decide where to put even the bolts. Therefore, we do not have to pay royalty to companies outside. And that means significant cost saving for us. Comparatively our investment is a little on the lower side, and so the burden of financial cost is also not very high. When we have all the choices and decision making authority, we try to come up with a very cost-effective product. This is to say that our vehicle costs about Rs. 1,00,000 to 1,50,000 less than its Indian competitor.

How successful have you been in establishing a brand name?

It has been three or four years since we started. In the first year or two, we experienced a high complaint ratio. This forced us to give special attention to quality and service. I have already talked about all the improvements we have made. And the vehicles that have been sold lately have not shown much problems. So in the last year or year and a half, the number of complaints has reduced. We have also strengthened our service network, which has reached as far as Mahendranagar in the far-west. We are also very well stocked with spare parts.

Financially, how profitable is the business?

So far we have been losing money, we have not got any return. But we are proud to be the first Nepali automobile manufacturing unit.

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