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Low demand, expensive credit pull down vehicle sales in July

Low demand, expensive credit pull down vehicle sales in July

Mumbai/New Delhi: Passenger vehicle sales in India, Asia’s third largest automobile market, saw its first fall in nearly three years in July as expensive consumer credit held back potential buyers, prompting auto makers to cut production.

(HOW AUTO SALES GROWTH IS DIPPING) Sales volumes of cars and utility vehicles declined 1.44% from a year ago to 113,822 units in July, according to data from Society of Indian Automobile Manufacturers, or Siam. Sales in this category last fell in November 2005.

Some experts are paring their growth estimates for the industry.

Four out of eight analysts Mint spoke with, have lowered their growth estimates for the sector to an average 7% for the current fiscal from 9.5% earlier. The others have maintained their growth estimates for the period at around 8% on average.

On Monday, Mahindra and Mahindra Ltd, India’s biggest maker of sports utility vehicles, cut production at its Nashik plant in Maharashtra after the first drop in sales this year.

“Production has to be in line with demand," said Pawan Goenka, president of the company’s automotive sector. “As the demand right now is somewhat slow, the production is also slow."

With inflation at a 13-year high, a worried Reserve Bank of India has raised its benchmark interest rate three times in the past two months, prompting a 3-3.5% rise in lending rates for automobiles this year.

“The dip (in car sales) was not unexpected," said S. Ramnath, vice-president at brokerage IDFC-SSKI Securities Ltd. “July and this month (August) are generally flat months due to the monsoons. Plus, there is the interest rate impact."

About 75% of India’s passenger vehicles and just above 50% of two-wheelers are financed by banks and other financiers.

“A lot depends on monetary policy and availability of finance," said Dilip Chenoy, director general, Siam. “We believe this to be temporary and hope in future months passenger car sales are positive."

Mahantesh Sabarad, an analyst with Centrum Broking Pvt. Ltd, is also optimistic for the sector and expects the passenger car segment to clock a 10% growth by the year-end. “July was a blip, because sales were pushed by means of discounts and freebies in the first three months," he said. “We expect sales to perk up with the onset of the festive season and new model launches lined up for the year."

“Another round of price hikes by the manufacturers is unavoidable as they need to mitigate losses," said Hitesh Kuvelkar, head of research at First Global Securities Ltd. “This will certainly dampen demand. We were expecting all the macroeconomic factors to take toll on the numbers." Kuvelkar’s estimate of 5% growth is the lowest among all analysts polled by Mint.

“While we haven’t downgraded our estimates for the passenger car segment, we have done it for the medium and heavy commercial vehicle segment," he said. “We expected the segment to have a runaway growth of 16%. It has so far grown only by 8%."

Still, sales in two-wheelers, the largest automobile category, grew 19% in July, as volumes continued to expand following a 12% contraction last year. Hero Honda Motors Ltd, which sells half the motorcycles made in the country, led the increase with a 40% growth in July.

Commercial vehicle sales grew just under 2% as buyers kept away because of higher interest rates. Almost all vehicles in this category are financed.

Vipin V. Nair of Bloomberg contributed to this story.

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