New Delhi: India’s domestic vehicle sales are seen rising 12 to 13% in 2010-11, but rising costs and any premature withdrawal of stimulus measures could dampen sales growth, a top industry official said on Friday.
In the first nine months of the current fiscal year that ends in March, vehicle sales have risen 22%, with car sales showing a growth of nearly 24%, from a low base last year.
“Our only concern is if transaction costs go up significantly for customers, demand will go down,” said Pawan Goenka, president of the Society of Indian Automobile Manufacturers (Siam).
Transaction costs include sticker prices, taxes and interest rates on vehicle loans. The government had cut factory gate taxes in late 2008 and early 2009 to boost demand in a slowing economy, and the central bank has so far had an easy monetary policy.
While India’s top carmaker Maruti Suzuki has maintained prices, others such as Toyota and General Motors have raised prices on some models in January by 1.5-5% citing higher raw material costs.
India’s top motorcycle maker Hero Honda Motors has not decided on any price increases but is watching commodity prices, its chief, Pawan Munjal, told Reuters on Thursday.
“(Auto) companies are either absorbing the increases or finding other ways to compensate,” Goenka said, noting that the hikes were still below cost increases.
India’s top tractor and utility vehicles maker Mahindra & Mahindra has seen a 5% dip in monthly production since October 2009 due to supply constraints, Goenka, also the head of Mahindra’s automotive division, said.
“While (vehicle) manufacturers could ramp up their plants... suppliers had not invested for this kind of volume increase,” he said, forecasting an improvement in the situation by April.
He said suppliers had been caught unprepared by the sudden turnaround in sales.
“Suppliers tell us: ‘we are fair to everybody´. If this statement is correct, everyone will be affected equally,” Goenka said.
Car sales in India rose an annual 40.3% in December 2009, boosted by an improvement in overall customer sentiment, easier credit and a lower sales base of last year, Siam data showed.
Firms sold 115,268 cars in the month compared with 82,174 units a year ago.
Sales of trucks and buses, a gauge of economic activity, was up 171.6% at 48,614 units in December from 17,897 units a year earlier, the data showed.
However annual vehicle sales growth in the January-March quarter is expected to be lower compared to the previous quarter’s growth, due to the higher base effect, Goenka said.
Automobile sales started picking up from last January as a slew of government incentives to stimulate Asia’s third largest economy out of the global financial crisis-led slowdown took effect.