Rising interest rates, fuel prices continue to dent car sales

Rising interest rates, fuel prices continue to dent car sales

Mumbai: The introduction of new models perked up sentiment in the Indian automobile market to some extent, even as high fuel prices, rising lending rates and rains continued to deter buyers from shopping for new vehicles, June sales data released by auto makers on Friday showed.

Auto makers report despatches to their dealers and not buyers.

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Analysts say the sluggishness is likely to continue for the next two months.

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Two-wheeler sales, however, continue to remain high as they are relatively insulated from rising interest rates and fuel prices. Around 55% of two-wheelers bought are self-financed, while two out of every three cars are bought on credit.

Sales at market leader Maruti Suzuki India Ltd, which saw labour unrest that crippled production for 10.5 days in June, declined 3.8% to 70,020 units. The strike at the company’s factory in Manesar in Haryana led to a production loss of 12,600 units. The factory produces the Swift, the Dzire and the SX4 models.

Sales were also affected by a six-day maintenance shutdown of the company’s facilities in Gurgaon, Maruti said in a statement.

Ajay Shethiya, an analyst at brokerage Centrum Broking Pvt. Ltd, said June has traditionally been a weak month for Maruti. He expects better sales next month as the car maker recovers the production loss.

Passenger car sales at Tata Motors Ltd, India’s third largest by sales, were dragged down by a sharp fall in sales of the Nano and the Indigo sedan to 21,993—an overall drop of 21% over last June. Sales of the Nano, the world’s cheapest car, declined by 29% to 5,451 units while Indigo sales dropped 35%. Sales of its flagship Indica dropped 9%.

Mahindra and Mahindra Ltd, the market leader for utility vehicles, bucked the trend, selling 33,722 units, an increase of 29% over the corresponding period a year ago. Sales were propped up by the new launches in the passenger car segment (the Verito sedan) and the Maxximo van.

Utility vehicles and car sales grew slowest in two years, according to Crisil Research, a unit of rating agency Crisil Ltd. During the month, the top three car manufacturers, which accounted for two-thirds of domestic sales, reported a 4.5% fall in sales volumes. Sales expanded at a meagre 3-4% year-on-year, in stark contrast with June 2010, when sales had grown by around 30%.

Sales at other auto makers showed an upward trend on the back of new launches and a low base. The new Verna, launched in May, drove sales at Hyundai Motor India Ltd 11% higher to 30,402 units.

Similarly, sales at Toyota Kirloskar Motor India Pvt. Ltd, Volkswagen Group Sales India Pvt. Ltd, Nissan Motors India Pvt. Ltd, among others, were pushed by new models such as the Etios, the Vento and the Micra.

Unfazed by rising interest rates and high inflation, two-wheeler sales remained bouyant, with all two-wheeler makers reporting double-digit growth in sales. Market leader Hero Honda Motors Ltd led the pack with sales of 520,000 units, a growth of 20% over a year ago.

Meanwhile, commercial vehicle sales at Tata Motors, country’s largest by volume, continued to expand. The company sold 39,271 units in June, an increase of 13% compared with the year-ago period.

Other commercial vehicle makers will release their numbers later this month.

Centrum’s Shethiya said the demand for trucks is likely to get muted in the months ahead owing to a recent hike in diesel prices. Diesel accounts for more than half the operating costs for fleet operators. Unlike last year, fleet operators may not be able to pass on the hike as freight volumes are weak and this may adversely impact their ability to buy new trucks.

Shethiya expects overall sales volumes for the industry to pick up in the second half as inflation softens, interest rates peak, and the festive season kicks in.