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Car sales up, but costly loans to hit growth this year

Car sales up, but costly loans to hit growth this year
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First Published: Thu, Apr 12 2007. 04 59 AM IST

Updated: Thu, Apr 12 2007. 04 59 AM IST
Strong economic growth and a slew of new model launches helped car makers, led by Maruti Udyog Ltd (MUL), register a 22% growth in sales in 2006-07 compared with a year ago. But Asia’s fourth-largest automobile market may witness a slow down this year as higher lending rates force customers to defer their buying plans.
Passenger car sales grew to a record 1.07 million units in the year ended 31 March 2007, compared with 882,208 units a year ago, as 10 of the 12 companies making cars in India posted double-digit growth rates, said Society of Indian Automobile Manufacturers, an industry body.
MUL sold 549,317 cars in 2006-07, up 20% from a year ago as customers bought more of its new models such as the Zen Estilo and Swift’s diesel variant. Sales of General Motors India Pvt. Ltd, Ford India Pvt. Ltd and Honda Siel Cars India Ltd all grew in excess of 45% riding on their new sedans.
Still, growth in passenger cars may slow down this year, with lending rates rising by as much as 350 basis points in the last quarter.
“The growth during the current year revolves around how interest rates pan out,” said Jayesh Gandhi, a fund manager with Birla Sun Life AMC Ltd. “If they remain high, we could see lower numbers. Earlier the expectations were around 15-20% for passenger vehicles. They may have to be revised downwards.” Every seven of 10 cars sold in India are financed by bankers.
The rise in lending rates also slowed two-wheeler sales. Sales were at 7.86 million units in 2006-07 compared with 7.05 million a year ago, an increase of 11.42%. Last year, the growth rate was 13.6%. (see Graphic)
“The fourth quarter was weak because of an inventory pile-up at dealers,” said Kalpesh Parekh, head of institutional sales at brokerage firm, ASK Raymond James & Associates. “The increase in interest rates also had a psychological effect on customers, making them postpone their buying decisions.”
The largest four players in the two-wheeler market again dominated, generating almost 95% of sales in 2006-07, compared with 93.4% of sales in 2005-06.
Hero Honda Motors Ltd led with sales of 3.2 million units, up 11.74%, while Bajaj Auto Ltd sold 2.09 million units, up 13.16% over the previous year.
Analysts such as Parekh expect the industry to grow at 10-12% this year as more jobs are created in satellite towns, which may translate into commuters needing motorcycles and scooters to travel to their workplace in the absence of a reliable public transport.
The 9% economic growth also boosted the sales of trucks by 38% to 415,365 units in 2006-07. Growth was skewed towards small trucks (less than 3.5 tonnes) such as the Tata Ace and heavy trucks (more than 16.2 tonnes). Sales of small trucks grew 63% to 132,067 units compared with 80,785 units a year ago. And sales of heavy trucks grew 70% to 146,425 units. This growth was helped by a Supreme Court order, dating back to December 2006, banning trucks from carrying cargo heavier than designated payload and a move by transporters towards the hub-and-spokes model where light vehicles ferry goods within a city and heavy ones between cities.
Saurav Sarkar contributed to this story.
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First Published: Thu, Apr 12 2007. 04 59 AM IST
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