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Auto sales fall 6.4% as lending rates stay high

Auto sales fall 6.4% as lending rates stay high
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First Published: Fri, Aug 10 2007. 01 00 AM IST

Updated: Fri, Aug 10 2007. 01 00 AM IST
Vehicle sales in India, Asia’s fourth largest automobile market, fell 6.4% in July, declining for the fourth straight month, as buyers postponed or avoided purchases because lending rates that are at a five-year high have hampered their ability to take on auto loans.
Manufacturers such as TVS Motor Co. Ltd and Bajaj Auto Ltd, India’s second largest two-wheeler maker, are introducing new vehicles to boost sales in the second quarter and recover from the slump.
In July 2007, 683,684 vehicles were sold in the country compared with 730,194 a year ago, with motorcycles leading the decline. Sales of motorcycles, the entry level for motor transport in the country, were the hardest hit - for a fifth month in the row - with most companies reporting declining demand. Motorcycle sales fell to 375,004 in July 2007 compared with 453,152 units a year ago. Lending rates have increased by as much as four percentage points in the past six months as the central bank tightened the money supply to control rising inflation. As a result, commercial banks have also become more selective in financing motorcycle purchases, since the credit profile of a typical customer is more “risky”. More than 60% of the two-wheeler sales in the country are financed.
Still, analysts and companies see a reversal in the second half. “The second half of the year is usually better than the first, with demand picking up during festival and marriage season,” said Vaishali Jajoo, analyst with Angel Broking Ltd. “There will be at least single digit growth and volumes will pick up with the new launches,” she added.
In India, the most widely celebrated festivals such as Diwali and Dussehra fall in the second half of the year, as does the auspicious period for weddings. Buying new vehicles is common in weddings, often a part of the illegal custom of dowry where the bride’s family will buy big ticket items as presents for the groom. This often includes cars and bikes.
Passenger vehicle sales, however, continued to grow, with 464,786 vehicles being sold in July 2007 compared with 412,684 a year ago as new vehicles and increased spends on marketing boosted sales.
The country’s largest car maker Maruti Udyog Ltd reported an 18% increase in sales as it introduced promotional plans for its employees, and those of its parts suppliers and dealers. Its closest rivals Hyundai Motor India Ltd and Tata Motors Ltd, the country’s largest auto company by revenues, reported declining sales in July as lending rates and capacity constraints crimped growth.
Three-wheeler sales continued to decline too. Sales dipped to 30,878 vehicles in July compared with 34,586 units a year ago as smaller four-wheeled cargo vehicles, such as the Tata Ace, ate into their market. Commercial vehicles sales grew 2.53% to 33,496 vehicles as demand for buses increased from state transport corporations.
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First Published: Fri, Aug 10 2007. 01 00 AM IST