The Society of Indian Automobile Manufacturers (SIAM), an industry lobby, said car sales growth in 2008 would be fuelled by new product launches as well as price cuts on existing models as higher interest rates hold back buyers.
“The growth in car sales is coming at a price”, said Ravi Kant, president of SIAM. “Companies are reducing prices or giving incentives to avoid contraction in sales.”
Car sales grew in 2007 even as demand for trucks and two-wheelers slowed amid five-year-high interest rates. Two-wheeler sales declined by about 4%, the first fall in at least 10 years,
Car sales were mostly driven by the launch of new brands which recorded the most growth such as General Motors Corp.’s small car—the Chevrolet Spark. Car makers have offered incentives, ranging from holidays, free accessories to one-off discounts to spur the sales of older brands.
Based on four years of consecutive growth in the automobile industry, manufacturers have committed $18 billion worth of investments and these are expected to increase capacity in the next two years, said Kant, who is also the managing director of Tata Motors Ltd, India’s largest automobile maker, which will unveil India’s cheapest car, costing Rs1 lakh, on Thursday.
“If things do not improve, the burden of capex (capital expenditure) will sit on our heads in the next two years,” he said, urging the government to create an environment for consumption, which included faster implementation of road building and taking steps to bring interest rates down to spur demand.
Kant did not specify any incentives from the Union government to boost sales of vehicles in India.
However, the Union minister of heavy industry and public enterprises has previously said that if the sales slowdown continues, the government would consider intervening, without saying how.
Kant added that auto makers’ concerns have been conveyed to the Union finance minister. At the same time, he said the auto industry in India could witness doubling of investments to $36 billion over the next five years, with growth in the domestic market and from the export of vehicles and auto components.