Auto sales set to slow after record surge in 2010

Auto sales set to slow after record surge in 2010

Mumbai: Auto sales in India grew a record 31% in 2010, driven by a burgeoning middle class in Asia’s third-largest economy, but tougher comparisons, a likely hike in interest rates, and rising fuel and vehicles costs are expected to slow sales growth this year.

Helped by booming demand in an economy growing at nearly 9%, easier access to financing and a wider choice of models as global automakers sought to offset sluggish sales in developed markets, India car sales rose nearly 29% in December versus a year ago, official data showed on Tuesday.

“Now with the higher base, they cannot repeat that performance for next year. But in absolute numbers, the demand will be higher," Kunal Dalal, automotive analyst at KR Choksey Shares & Securities in Mumbai, said.

China, the largest and fastest growing major car market, saw sales rise by a third in 2010, and is also seen slowing in 2011 due to rising gas prices, the withdrawal of subsidies and new laws governing new car registrations.

While India’s car market is growing apace with China’s, it has a lot more room to grow with a population of nearly 1.2 billion, just behind China’s 1.3 billion.

Chinese car sales reached 13.8 million units in 2010, while Indian sales totaled 1.9 million units.

Indian auto sales are expected to moderate in 2011, pegged at 12 to 15% by Fitch Ratings and other analysts. That growth rate is more in line with the US auto market, which is the world’s second largest and grew 11% in 2010, snapping a four-year decline.

Sales growth

Analysts said an expected rise in interest rates and increasing prices of vehicles would dent sales growth.

Mahindra & Mahindra and Tata Motors, maker of the world’s cheapest car, said in January they would raise prices to counter increasing input costs, mainly those of steel and rubber.

Mahindra reported a 42% rise in December sales year-on-year, market leader Maruti Suzuki posted a 26% jump and Tata reporting a 31% rise in Indian sale.

Commercial vehicle sales, a key economic indicator, rose more than 27%.

“I think the robustness of demand continues. There will be a little bit of headwind going forward -- increase in interest rates, little bit of liquidity concern -- which may have an impact," said Vaishali Jajoo, automotive analyst at Angel Broking.

Automakers launched seven new models in the Indian market in 2010: Ford Motor Co’s Figo, Volkswagen AG’s Polo, Nissan Motor’s Micra, Toyota Motor’s Etios, Volkswagen’s Vento and Maruti Suzuki’s Alto variant.

Tata started delivering the Nano -- the world’s cheapest car -- in 2010 as well. Sales of the Nano sputtered to around 500 in November, sliding 85% from a year earlier to an all-time low, hurt by safety concerns following reports of some spontaneous fires and financing difficulties.

Nano sales picked up in December, reaching 5,784 units.

“Rising industrial production, easy consumer credit along with increased consumer confidence, and higher disposable incomes will lead to growth for the (Indian) auto industry," Fitch said in its report.