Sales of trucks, two-wheelers hit as buyers wait for softer loans

Sales of trucks, two-wheelers hit as buyers wait for softer loans
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First Published: Sat, May 05 2007. 12 51 AM IST
Updated: Sat, May 05 2007. 12 51 AM IST
April was a cruel month for some of India’s truck makers and two-wheeler manufacturers, as the impact of higher interest rates to tighten borrowing and contain inflation slowed down purchases.
Lending agencies have increased the amount of down payment needed for bike purchases, and truckers, holding out for a lowering of rates, are putting off purchases and this is dampening sales, say analysts.
While medium and heavy goods carriers achieved 37.65% annual growth in fiscal 2007, selling 2,46,862 vehicles domestically, in April, Tata Motors Ltd, the country’s largest truck maker, said sales dipped 14% for medium and heavy commercial vehicles. It sold 10,392 such vehicles. The company holds 64% of the market. In two-wheelers, Bajaj Auto Ltd, the No. 2 maker of bikes, and TVS Motor Co. Ltd, its lagging rival, said sales fell more than 10%.
“Non-banking finance corporations have gradually increased the down payment amount for purchasing a bike from 5% a year back to 15% now,” says R. Chandramouli, vice-president, sales and marketing, TVS Motors. The company sold 1,04,893 two-wheelers in April 2007. “And it has become a deterrent for the entry-level bike buyers resulting in a decline in sales.”
Unlike passenger cars, the majority of finance for the bikes comes from non-banking finance firms and not from banks. According to Chandramouli, roughly 60% of all bikes sold are financed by these institutions. These firms have less of an ability to withstand and absorb rate increases because they don’t have access to cheap funds themselves or the ability to tap the debt markets.
Banks, on the other hand, can borrow money from debt markets, where long-term borrowing costs less in a rising rate environment.
April sales are also affected by other traditional factors such as inventory build-up. Companies, to comply with a fiscal year that ends in March, tend to push out more vehicles in that month to boost sales. So while the bikes are shown as sales on their books, it sits as inventory with dealers.
Sometimes, the dealers aren’t able to sell all the vehicles they get and then refuse to add on to their pile in April.
“There has also been a correction of inventory with the dealers this month. A slight correction in this is also expected in May,” said S. Sridhar, vice-president, marketing and sales, Bajaj Auto.
Still, companies are optimistic that sales may pick up in the July quarter as buyers would have had some time to absorb the rate increases and reorganize their finances.
Truck sales have been postponed, and may be set to slow if the economy loses its current pace of growth, say analysts.
“We expect slower gross domestic product growth and rising interest rates to trigger a decline in medium and heavy goods carrier demand. Growth in lead indicators has also peaked,” says HSBC Global Research analyst Sanjay Satpathy in his India Commercial Vehicles report dated 19 April.
Demand for medium and heavy goods carriers could grow by 6% in fiscal 2008, and decline by 15% in fiscal 2009. And that decline in demand could start in the second half of fiscal 2008, the note says.
Some analysts are more optimsitc and feel the slowdown may be temporary.
“It is only that the buyers are postponing it for some time to see if there could be a correction in interest rate,” says Umesh Karne, senior research analyst, Emkay Share and Stock Brokers.
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First Published: Sat, May 05 2007. 12 51 AM IST
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