New Delhi: Demand for passenger cars continued to shrink in June, forcing the Society of Indian Automobile Manufacturers (Siam) to lower the forecast for the current fiscal.
The poor showing in June came as auto makers offered discounts and freebies to push sales and reduce inventories. “We need to watch interest rates, fuel prices and commodity prices carefully,” said Siam president, Pawan Goenka.
Growth slowed across categories from the year earlier - car sales grew 1.59%, bikes by 12.73% and trucks by 15.13%.
Siam also revised the outlook for the current year, saying passenger vehicles will grow 10-12% compared with the previous forecast of 16-18% made at the end of the last fiscal. Overall, the industry will grow 11-13% as against the prediction of 12-15%.
Car sales in Asia’s third largest economy, which in June saw their slowest pace of growth since March 2009, are driven by a burgeoning aspirational middle class that relies mainly on bank loans for its purchases.
“Interest rates in the last 15 months have gone up by 3 percentage points. We are sitting at the threshold, where if the interest rates go up, then the situation will get worse and will have a devastating impact,” Goenka said.
The Reserve Bank of India has raised the repo rate by 125 basis points since November 2010. Since December, petrol prices have risen by at least Rs 10 per litre to Rs 63 in Delhi.
“Policy rates are changing beyond what we had expected three months ago... if there is any further increase, it will have a devastating effect on the industry,” said Goenka.
Sales in China, where car sales grew 33% last year, are also expected to slow after the government stripped away most of its incentive policies.
Industry observers are divided on how fast the China auto market will grow in the coming years, but the consensus view is a 10% annual gain until 2015.
Still, China, on average, sells as many cars a month as India does in a year. With a population comparable to that of India, car sales reached 13.8 million units in 2010, while Indian sales totaled 1.9 million units last fiscal year.
An increase in vehicle finance rates and fuel prices are the main concerns for the rest of the year, he said. India has raised diesel and petrol prices by about 9% in the past two months.
“We have seen slowing sales for three months now and with rising interest rates and negative sentiment among buyers, this trend will prevail for another three months,” Vineet Hetamasaria, auto analyst at PINC Research said.
June sales slowest in more than 2 years
Car sales in India rose 1.6% in June, according to data from the Society of Indian Automobile Manufacturers (Siam) released on Monday. The industry sold 143,370 cars.
Sales of trucks and buses however, a key barometer of economic health, rose 17.8% to 62,009 vehicles in June.
“Maruti numbers have largely brought the June sales numbers down,” Hetamasaria said.
Sales at top car maker Maruti Suzuki India fell 8.8% to 80,298 vehicles in June, marking the first fall since December 2008.
Production at Maruti, majority-owned by Japan’s Suzuki Motor, was hurt by a strike last month that led to a production loss of about 16,000 cars.
Sales at Tata Motors, India’s largest maker of trucks and buses and the manufacturer of the Nano, touted as the world’s cheapest car, fell 1%. Sales of the Nano plunged 29%.
“This was expected. Rising interest rates and inflation are contributing to slowing sales. Also, ahead of the monsoons, demand for cars typically slows down,” Kishor Ostwal, chairman at brokerage CNI Research, said.
Foreign automakers, however, continued to post a surge in sales, driven by exports. They are also far newer in India than their domestic counterparts and have easier comparisons with lower base figures that allow for higher growth rates.
The Indian unit of Toyota Motor Corp posted a 94% rise in June sales, driven mainly by a big increase in sales of its Etios sedan, which accounted for nearly 50% of its sales.
Nissan Motor Co saw sales rise 21 times in comparison with the year ago. Nissan’s domestic sales in June stood at 1632 cars, while exports stood at 9,072.
Several global automakers in India such as Toyota, Ford Motor, Volkswagen, Nissan and General Motors are lining up new models and boosting investment in the country, with a focus on exports.
With input from Reuters