Car sales forecast may be cut again

Car sales forecast may be cut again

New Delhi: Slowing demand has forced India’s top automobile industry body to cut its growth forecast for cars for the third time this year.

The Society of Indian Automobile Manufacturers (Siam) expects passenger car sales to gain 6-8% in 2011-12, said two executives familiar with the matter. They declined to be named ahead of an official announcement likely on Monday.

At the beginning of this fiscal year, Siam predicted an increase of 16-18% in car sales compared with the 29.7% gain in the previous year. Still, the high-end of that estimate would have meant sales of at least 2.2 million cars this fiscal.

But as demand showed signs of weakening because of increase in fuel prices and borrowing rates, Siam cut its growth forecast for car sales to 10-12% in July.

For the overall auto industry, Siam lowered its estimate to 12-14% in July from 16-18% earlier. Automobile sales rose 26.2% to 15.5 million units in the year ended 31 March, according to Siam data.

Vishnu Mathur, director general of Siam, declined to comment.

“There have been a series of interest rate hikes by the RBI (Reserve Bank of India). This, coupled with the increase in fuel prices, have stopped people from making a purchase decision," said one of the officials mentioned above. “However, we might see a double-digit growth for the whole industry."

Since March 2010, India’s central bank has raised policy rates 12 times, turning people off credit in a country where seven of every 10 cars bought are financed.

Interest rates have increased by 350 basis points, or 3.5 percentage points, in this period.

The price of petrol has risen by about six times since October last year to 66.84 a litre in New Delhi.

Car sales dropped 1.5% in the five months to 31 August when compared with the same period last year. But most car makers bucked the trend in September, the beginning of a three-month festive season, by unveiling new models and offering heavy discounts to offset the negative sentiment of Shradh, a period when Hindus remember their ancestors and typically avoid purchases.

“Despite this, prospects are not good," said P. Balendran, vice-president at General Motors India Pvt. Ltd. “Normally, we see a 15-20% jump in sales during festive season. But this time, we do not expect it to be more than 5-10%."

In September, market leader Maruti Suzuki India Ltd reported a 17% drop in sales from a year earlier because of labour unrest at its factory in Manesar.

Experts say Siam’s revision was on expected lines. “This is not surprising," said Nikhil Deshpande, an analyst at brokerage Pinc Research. “Inflation is on a high and share markets are crashing. The general sentiment is not good."

Fewer people are replacing their old cars or buying second cars in this depressed market.

“Replacement buying is not happening," said Shashank Srivastava, chief general manager of marketing and sales at Maruti Suzuki. “We have noticed that while the number of first-time buyers has gone up significantly, people who already have a car and want to buy a second one or want to sell an old car to buy a new one are holding their decisions."

The proportion of replacement or second and third car buyers to first car buyers is around 44:56, and the former reflects anything between a 10 percentage points and 14 percentage points fall from last year. Mint reported this trend on 27 September.