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Have auto sales hit a speed bump?

Have auto sales hit a speed bump?
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First Published: Mon, Mar 14 2011. 11 40 PM IST
Updated: Mon, Mar 14 2011. 11 40 PM IST
There’s no doubt that January and February saw rising passenger vehicle sales compared with both the preceding month and a year before.
In fact, after it bucked the global recessionary trend with about 26% volume growth in fiscal 2010, this segment is expected to close fiscal 2011 (FY11) with a 30-33% growth.
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But, blame it on capacity constraints, vendor paucity or the higher base effect, indications are that the growth rate for the segment would taper off in the coming months. Car dealers of some leading brands are offering either cash discounts or freebies in the form of insurance or accessories.
A recent report by HDFCSecurities Ltd said: “Though industry has posted strong wholesale numbers (20-30% year-on-year) in (the) last two months, retail sales have declined by 3-7% in certain regions. This has, in effect, increased the average inventory levels in network from 10-15 days couple of months back to 25-40 days at present.”
To reduce retail stock, car makers are trying to push sales in March. Some dealers said customers are deferring decisions to buy cars, mainly due to higher interest rates, which have increased by two percentage points in the past nine months.
Further, there is heightened competition in the small and mid-size segments with the entry of new global firms. The only buoyant segment is utility vehicles, which is a new segment in the Indian market. Car makers are, therefore, offering discounts to grab or retain market share.
Naturally, this isn’t good for profits. The industry is already faced with near-term challenges such as rising commodity costs, staff costs, tighter liquidity and competition, which are squeezing profit margins.
For example, for the December quarter, Maruti SuzukiIndia Ltd’s operating profit margin (OPM) dipped by about 5.7 percentage points compared with a year ago. Likewise, Tata Motors Ltd’s improved performance was driven mainly by its overseas subsidiary J aguar Land Rover. Its stand-alone OPM was down by 2.35 percentage points from a year before.
Analysts have forecast a growth rate of about 12-15% during fiscal 2012, less than half of that clocked in fiscal 2011. A report by Icra Ltd points to a solid, but less euphoric future. “The Indian passenger vehicle industry will reach about 4.85 million in annual sales by FY16, representing a growth of 10.8% CAGR (compounded annual growth rate) over the next five years,” it said.
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First Published: Mon, Mar 14 2011. 11 40 PM IST