Car and two-wheeler sales rose at a healthy clip in February, helped by lower sticker prices, cheaper financing and purchases by government workers, raising hopes that the worst may be over for India’s auto makers.
Purchase of trucks and buses, however, going by sales at Tata Motors Ltd, continued to contract, indicating demand revival had not touched commercial vehicles, a valuable segment in the automobile business. However, the magnitude of decline, by 25%, compared with the year-ago period, was lower than the rate at which sales shrunk in the past few months.
A slowing economy coupled with rising interest rates had resulted in sales falling steadily in each of the months since July last year, with the exception of September when manufacturers increased dispatches to dealers in anticipation of expansion of demand in the festive month of October.
Maruti Suzuki India Ltd, the country’s largest car maker, said it sold 70,625 cars in the country in February, an increase of 19.1% compared with the same month last year. Retail numbers were also good, according to a company spokesperson. Auto makers report dispatches to dealers and not retail sales.
Hyundai Motor India Ltd also saw both domestic sales and export orders increase in February from a year ago. The car maker sold 21,215 cars in India in February, an increase of 45.3%. Export orders were up 18.3% to 17,039 units.
Industry watchers and analysts expect the performance to continue this month. “March will also be a good month,” said Ashwin Patil, an auto analyst at HDFC Securities Ltd, who added that he was unsure if the momentum would be sustained into the following months.
The percentage growth in sales numbers in February was boosted by the base effect, when relatively lower numbers in one period result in a bigger percentage growth in a comparable period later. Car sales had stayed flat last February as buyers put off purchases in anticipation of a cut in excise duties in the Union budget then.
Firms had also moved aggressively to cut down on inventories in December and January. Inventory levels at Honda Siel Cars India Ltd is down to four weeks, according to its president and chief executive Masahiro Takedagawa. February’s numbers also reflect the impact of the fiscal measures the government has taken in the last three months.
In December, excise rates were cut by four percentage points and car makers also offered a slew of discounts in order to spur sales. Both Maruti and Hyundai have also seen sales increase in December, January and February when compared with the month before.
After the Reserve Bank of India announced a one percentage point cut in rates at which it lends banks money, State Bank of India said last month it would lower the rate for auto loans to 10%. Several car makers formed partnerships with nationalized banks to help consumers finance cars and two-wheelers at cheaper rates. Maruti, for instance has tied up with Union Bank of India, Corporation Bank and Bank of Baroda. This has brought down interest rates to 11.5-12% from 14.5-15% a few months ago.
The expansion in auto sales “is primarily because of the improving liquidity situation and several PSU banks passing on the rate cut benefits to end consumers,” said Vaishali Jajoo, an analyst at Angel Broking Pvt. Ltd.
In addition, sales were also aided due to purchases by government employees. These usually account for 3.5% of the total cars Maruti sells, but last month such sales made up almost 8% of total sales.
Passenger car sales at Tata Motors, with 19,039 units in February, was just 1.5% higher than last year. Mitul Shah, an analyst with First Global Research, attributed the slower growth to the lack of new models in the auto maker’s portfolio. He, however, expects sales to grow at a faster pace, once Tata Nano enters the market in the coming months.
Tata Motors’ sales of commercial vehicles at 23,454 units also declined 25%.
Sales at two-wheeler market leader, Hero Honda Motors Ltd expanded 24% to 329,055 units in the month gone by. TVS Motor Co. Ltd posted a 13% rise in sales to 107,301 units while Bajaj Auto Ltd managed to narrow declining numbers: sales, including three-wheelers, were 17% lower at 132,393 units.
At tractor and utility vehicle maker Mahindra and Mahindra Ltd, after a continuous double digit decline in the past five months, domestic sales rose 6% to 19,594 units, mainly on account of brisk sales of its new model Xylo.