New Delhi: Sales of cars and trucks continued to shrink in December, latest data showed on Monday, the fifth drop in six months as expensive credit and a decelerating economy pulled down demand. Car sales were lower by 6.9% in the month from a year ago, bikes by 23% and trucks by at least 58%.
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January demand is also likely to fall and the current quarter will continue to report weak sales, industry executives predicted, despite the central bank taking steps to ease a liquidity squeeze in the market.
The poor showing in December came even as auto makers offered heavy discounts, so-called interest rate subventions or subsidies and vehicle trade-ins to push sales and reduce inventories—factors described by industry watchers and analysts as the best in several years.
They also expect discounting to continue for the next few months till the measures announced by the government in two stimulus packages result in an uptick in economic activity and consumer confidence.
“The impact of the first stimulus package does not seem to be reflected in the 2008 numbers,” the Society of Indian Automobile Manufacturers (Siam) said in a statement.
The National Council of Applied Economic Research expects demand for cars and other passenger vehicles to contract from its earlier forecast by 28.6%, to 1.37 million units, and two-wheelers by 16.67%, to 5.42 million units this fiscal year. The New Delhi-based think tank expects demand to stagnate at those levels in fiscal year 2010 as well.
December was also the first month when year-on-year sales of passenger vehicles, which include cars and utility vehicles, declined. They’ve fallen by 0.46% so far this fiscal year, according to Siam data.
Commercial vehicle (CV) sales have fallen by 15.52% in the first nine months of this fiscal year, while two-wheeler sales have risen by 1.85%.
December has typically been a lean month for auto sales. Resale prices for vehicles are fixed according to the year of purchase and so buyers tend to wait for the new year before buying.
CV sales, which have been the worst-hit in the present slowdown, fell 58.3% to 17,920 units in December. Last December, truck makers, including TataMotors Ltd and Ashok Leyland Ltd, had sold 42,961 units.
Car sales fell by 6,167 units to 82,105—a decline of 13.8% against December 2007—while two-wheeler sales were down to 461,302 units from 545,485.
Starting July, sales have fallen for five of the last six months, with September being the only exception as manufacturers pushed stock to dealers in anticipation of a spurt in demand during the festive month of October. Sales of autos were down 14.4% in October. Siam numbers report vehicles sold to dealers and not retail sales.
Last year, passenger vehicle sales rose 8.5% in January against the year-ago period. But unlike previous years, few expect sales to pick up in the first few months of this year and auto makers are bracing themselves for another tough quarter ahead. Sales in January are also likely to fall due to the so-called base effect, when higher numbers in one period result in muted percentage growth in a comparable period.
“We will see some amount of stress in January and February as well,” says N.R. Narayanan, general manager (retail) in the auto loans division at ICICI Bank Ltd. He expects the measures taken by the government to result in demand picking up by March or April, but cautions that it will be a “guarded recovery”.
High car financing rates that are hovering at 14-15% have dented demand in the past few months.
Narayanan declined to comment on whether interest rates would decline in the next few months, but said even declining interest rates may not be able to stem the slide in sales.
Some 75-80% of cars sold in India are financed by loans.
Reuters contributed to this story.