High loan rates, fuel prices keep auto sales in slow lane4 min read . Updated: 02 Jul 2012, 11:32 PM IST
High loan rates, fuel prices keep auto sales in slow lane
New Delhi: Weak buyer sentiment due to high petrol prices and interest rates continued to affect automobile sales in June—a pattern experts say is unlikely to improve until the festival season that begins in September.
Market leader Maruti Suzuki India Ltd registered double-digit growth, although this was primarily because it had low sales last June when a series of labour strikes began at its key plants. Sales this June grew 20% over a year earlier to 96,597 units.
“Sales at Maruti were up largely on a low base last year," said Mayank Pareek, chief operating officer (marketing and sales), Maruti Suzuki. “But the true indication is our quarterly numbers, where we have grown at only 5%."
According to an HSBC survey, Indian factories in June stepped up production and hired workers at the fastest rate in more than two years, but sagging demand abroad took a toll on growth in new export orders. The HSBC manufacturing purchasing managers’ index (PMI) rose to 55.0 in June, a four-month high, from 54.8 in May.
High petrol prices and interest rates have deterred car buyers, who are increasingly either deferring sales or preferring models run on diesel as the fuel is about 40% cheaper than petrol. The contribution of diesel-run cars to overall sales increased from 28.41% in 2010-11 to 50% in 2011-12.
Analysts say car sales are unlikely to recover before the festive season unless interest rates are lowered.
“The (June) numbers are lower than what we expected," said Yaresh Kothari, sector analyst, Angel Broking Ltd. “Impact of a slowdown is clearly visible. We expect some recovery from September onwards unless there is a rate cut by RBI (Reserve Bank of India, in which case a recovery could come sooner)."
The central bank, which raised its lending rate 13 times between March 2010 and October 2011 to fight inflation before reversing the cycle, refused to lower rates in June saying that would stoke prices than help the cause of growth.
Unavailability of entry-level diesel cars is also affecting sales, Kothari said. “That segment has contracted significantly due an absence of a diesel car. Sales of (Maruti’s high-selling entry-level petrol car) Alto itself has come down from over 30,000 units last year to less than 20,000 units this year," he said.
Maruti’s Japanese parent Suzuki Motor Corp. began work on two diesel engine prototypes—90 bhp and 75 bhp engines—last year at its engine development centre in Manesar near Gurgaon, Mint reported on 15 August last year.
The advantage diesel cars have over petrol models, however, may be diluted if the government levies an excise duty on diesel vehicles or increases the price of the fuel. Both options are being discussed.
Pareek of Maruti said the contribution of diesel cars to overall sales have increased 90% while that of petrol cars has declined by 18%.
Many of the other auto makers posted a decline in June sales, and a few reported a marginal rise from a year ago.
Sales at Hyundai Motor India Ltd, the country’s second largest car maker by sales volume, rose 3.5% to 54,354 units in June. “The general inflationary trend, high fuel prices, interest rates that are still high are keeping sentiment low. Unless any triggers get activated, sentiment is not expected to improve very much," said Arvind Saxena, director of marketing and sales at Hyundai India.
Sales at India’s largest auto maker Tata Motors Ltd dropped 3% to 64,341 vehicles in June. Passenger vehicle sales fell 22% to 21,994 units.
Mahindra and Mahindra Ltd, India’s leading utility vehicle manufacturer, fared better, announcing a 27% rise in June sales to 21,154 units. “The company’s portfolio of models is predominantly diesel-fuelled, shielding it from the effect of the hike in petrol prices," it said in a statement.
At Toyota Kirloskar Motor Pvt. Ltd, too, sales grew 22% to 14,700 units largely due to its diesel models. In June, Toyota stopped production of petrol cars in India.
Sales at General Motors India Pvt. Ltd and Ford India Pvt. Ltd dropped 11% and 21%, respectively, to 7,364 units and 7,281 units.
In the two-wheeler segment, Honda Motorcycles and Scooters India Ltd, which split from the Hero group last year after a long partnership, gained the most with sales growing 52% in June to 226,864 units.
Sales at market leader Hero MotoCorp Ltd, which had a strong growth trajectory until last month, grew 4% to 534,091 units in June. At Bajaj Auto Ltd, sales were nearly unchanged at 318,377 units, and at TVS Motor Co. sales declined 7.38% to 165,438 units.
Kothari of Angel Broking said Bajaj’s growth was affected by the slowdown in global markets that hit its exports. Bajaj in its annual report, released last week, said it expects overseas sales this fiscal year to be under pressure.
“Growth in exports for the company for the financial year 2012-13 in both motorcycles and three-wheeler segments is facing some headwinds due to international events such as substantial rise in import duty in Sri Lanka, trade restrictions imposed in Argentina, dollar trade embargo in Iran," the company said in its report. “Given this challenging environment, managing growth with profitability and building a sustainable growth momentum will continue to be a key challenge for the forthcoming financial year."
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