Chennai: Ford Motor Co’s Indian unit expects local sales to pick up despite higher interest rates, but warned that poor roads and infrastructure may deflate hopes of a boom in automobile production.
Ford makes the Ikon, Fusion and Fiesta sedans and assembles the Endeavour sport utility vehicle at its plant outside southern Chennai city. It sold nearly 42,000 units locally in 2006 and exported about 20,000 units, and has said it had slower sales in the fiscal year from April because of rising interest rates.
“The customer has sat on the fence for the longest time, thinking interest rates will come down,” Ford India Managing Director Arvind Mathew said in an interview late on Tuesday.
“But now they’re reconciled to this status. So we will see a bit of a pickup in the last quarter,” he said.
Some manufacturers expect an upturn in demand during India’s festival season starting this month, with discount offers and the payment of annual bonuses.
India’s central bank raised rates five times in the year to March, bumping up rates on car loans by 250-350 basis points.
Ford wants a larger share of the diesel auto market, which is growing on the back of higher gasoline prices and new technologies. Government policies make diesel about 40% cheaper than gasoline, and diesel’s share of the passenger vehicle market is forecast to grow to 35% by 2010 from 30% .
“Surprisingly, even in markets that have not traditionally been diesel markets, like Mumbai, we’re seeing greater demand,” said Mathew, an MBA from the University of Michigan, who has also worked for Ford in Germany, Turkey and Britain.
Ford is also stepping up exports.
It began selling the Fiesta to South Africa, in addition to Ikon kits it already exports, and expects to ship 5,000 Fiestas and up to 22,000 Ikons a year. Other export markets would include South Asia and Southeast Asia, Mathew said.
Ford’s Volvo Car unit this month started importing its S80 sedan and XC90 SUV into India, and may later begin assembling these models in India.
Demand for bigger cars is growing, but small cars still make up more than two-thirds of annual sales, with Suzuki Motor Corp’s Maruti Suzuki India Ltd dominating that market.
General Motors has its mini Chevrolet Spark, Toyota Motor may make a small car in India and Renault is studying a $3,000 car to take on the $2,500 car that Tata Motors aims to launch in 2008.
“The small car segment is such a huge market, we are not ignoring it. We are investigating it,” Mathew said, without specifying Ford’s plans.
Ford is increasing its dealer network to 135 centres this year, and its factory, which produces 65,000 units, has the capacity to build 100,000 units a year.
But Mathew said that overburdened roads and a taxation policy that favours small cars can skew demand.
Multiple state taxes and delays at ports and in transporting parts and products also raise costs for manufacturers and chip away at India’s low-cost advantage, he said.
“Two million in annual sales is possible,” he said, referring to a widely used forecast for annual passenger vehicle sales by 2010. “But unless the rest of the system keeps up, we may not be able to sustain growth and our level of infrastructure will dictate the kind of car we buy.”