In an omnious sign for the car industry, Hyundai Motor India Ltd, the second largest passenger car maker in the country, says sales growth may be stunted in the forthcoming festival season due to high lending rates and the industry’s inability to offer more discounts.
As consumers pull back, recent sales have been propped up by average rebates totaling Rs40,000, or about 10% the price of a compact car. This includes a combination of cash discounts, free insurance for limited periods, accessories, discounting on car loans and cash for old cars.
“The festival season may not see as much growth as we normally see,” said Arvind Saxena, vice-president of sales and marketing at Hyundai’s local unit. “Interest rates are really hurting and going forward now, a growth of 14% over last year seems difficult.”
This year, bank and finance company lending rates, which have increased by as much as four percentage points in the past three quarters, are near a five-year high. That is forcing many prospective customers to stay away from buying vehicles. As much as 60% of motorcycle and 85% of passenger car purchases in India are financed by banks or financiers.
Saxena also said that manufacturers are no longer able to offer big discounts to boost sales in the festival season as they traditionally did, since customers are getting used to promotions through the year.
“Money, beyond a point, cannot be spent,” he said. “If I have Rs100 (set aside as money for promotions), I can spend Rs8 every month or Rs50 in two months. The flexibility has come down after the interest rates have gone up.”
In India, the most widely celebrated festivals, such as Diwali and Dussehra, fall in the last quarter of the year, as does a generally auspicious period for weddings. Buying new vehicles is common in weddings, often a part of the officially banned custom of dowry, where the bride’s family will buy big-ticket items as presents for the newly-weds. This often includes cars and bikes. In 2006, nearly 700,000 vehicles were sold each month between October and December, up from 635,000 units a month in the preceding two quarters.
“Whatever growth we have seen so far is coming only from the new models,” Saxena said. Sales of passenger cars have grown by 13.6% in April-August compared with a year ago, according to data provided by the Society of Indian Automobile Manufacturers. In the same period last year, growth was 20.6% over 2005-06.
Three volume models—Suzuki SX4, Renault Logan and Chevrolet Spark—have been introduced after April. These three sold an estimated 7,000 units in August out of a total of 98, 893 vehicles.