Strong economic growth and product launches helped car makers sell more in 2007 compared with a year ago, although rising lending rates slowed the rate of growth in Asia’s third largest market for vehicles, according to preliminary sales data. Two-wheeler sales in 2007, however, declined by about 4%, the first fall in at least 10 years, data released by the three largest bike makers showed.
Analysts expect growth in the passenger vehicle market to pick up in 2008 on expectation that lending rates will soften while growth in the two-wheeler market is likely to be flat as cheaper cars such as Tata Motors Ltd’s Rs1 lakh car are introduced, prompting some two-wheeler users to upgrade to cheaper cars.
Maruti Suzuki India Ltd, which sells one of every two cars in the country and is the country’s largest car maker by volume, sold 707,020 vehicles in 2007, up 19.14% from a year ago as customers bought more of its new models such as the Zen Estilo and Swift’s diesel variant. The car maker has lined up at least two new cars—the Swift Sedan and the A-star—this year as its new managing director S. Nakanishi gears up to defend its market share.
Among the car makers that have so far released their sales data, the local unit of General Motors Corp. recorded the maximum growth in 2007, spurred by the launch of a small car—the Chevrolet Spark. GM India sold 60,032 vehicles last year, up 67.6% from the 35,823 cars it sold in 2006. The company is expanding its production capacity to 220,000 units a year by building a new factory at Talegoan on the outskirts of Pune, which is expected to start production in the third quarter of this year. It has increased prices by 1% this year.
Tata Motors, India’s largest auto maker by revenues, reported flat growth with sales of 237,608 cars and utility vehicles, just 300 units more than what it sold in 2006. It is scheduled to introduce a Rs1 lakh car in the third quarter of 2008, which will be India’s cheapest, as well as launch new versions of its Indica and Indigo models, which is likely to help it boost sales.
Mahindra and Mahindra Ltd, India’s biggest utility vehicle maker, reported a near 30% increase in sales to 204,553 units last year as it introduced the Logan car while Hyundai Motor Co.’s local unit reported a 7.2% increase in sales to 200,412 units.
“I’m betting on softer interest rates from current levels,” said Huzaifa A. Suratwala, senior analyst at Networth Stock Broking Ltd. “This and new launches across the industry will see good demand for passenger vehicles.”
Interest rates hit a five-year high during 2007 as India’s central bank tightened money supply to curb rising inflation. With inflation levels easing, analysts expect lending rates to soften this year.
The rise in interest rates hit the two-wheeler segment the hardest with companies such as Bajaj Auto Ltd, India’s second largest maker of two-wheelers, and its immediate smaller rival TVS Motor Co. Ltd reporting declining sales for as many as 10 months of 2007.
Bajaj Auto’s sales of two-and three wheelers fell 7% to 2.52 million units last year, down 7.1% from a year ago. In 2006, it sold 2.72 million units. The firm is banking on the introduction of its XCD motorcycle to arrest the decline in sales.
TVS Motor also reported a 11.7% fall in sales to 1.27 million units in 2007 compared with 1.44 million units sold a year ago. The company is betting on a series of launches and planned launches—nine in all in the seven months to March 2008—to revive sales. Hero Honda Motors Ltd reported a growth of 1.7% as it sold 3.3 million units in 2007.
“I feel this year is going to be tough for two-wheeler companies because people may shift to four-wheelers because of launches like the Rs1 lakh car,” said K.K. Mital, a fund manager with Escorts Asset Management Co. Ltd. “It may not be as great as 2006, ” he added, referring to a year when the top three two-wheeler companies that account for 95 of every 100 two-wheelers sold in India, grew their sales by 15%.