Car sales expected to improve in new year

Car sales expected to improve in new year

Mumbai: Car makers in India expect sales to rebound in 2012 as the central bank likely starts cutting interest rates—a critical factor in determining demand for auto and home loans in Asia’s third largest economy.

Lower borrowing costs and new models are expected to translate into higher sales for car makers, which have seen demand dented in 2011 as the Reserve Bank of India (RBI) raised policy rates 13 times since March 2010 before hitting the pause button this month.

Higher borrowing costs, the rising cost of petrol and inflation that cut into the disposable incomes of consumers eroded car sales in a year that was marked by a radical shift in customer preferences to diesel vehicles.

Take for example Merrin John Thomas, a company executive in her early 30s, who works at a multinational firm in Mumbai. She booked a Hyundai Verna diesel car on 24 October and chose to wait as long as eight months for it to be delivered.

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Mint’s Shally Seth Mohile talks about the outlook for India’s auto industry in 2012 and the roles diesel and electric technologies will play.

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The share of diesel cars sold in India gained six percentage points to 23% in the past eight months as the difference between the prices of petrol and diesel widened. In the last one year, petrol prices have gained 30% to 66.84 per litre (Delhi) from 51.56 a litre while the price of diesel has more or less remained stable at 40.75 per litre.

The Society of Indian Automobile Manufacturers has twice pared its sales forecast for this year and expects the industry to end the fiscal year in March with a mere 2-3% increase in sales after last year’s 30% rise. Three months of labour unrest at Maruti Suzuki India Ltd, the country’s biggest car maker that sells one of every two cars bought in the country, also dragged down sales. Maruti Suzuki suffered a production loss of 8,300 units in August-October.

Experts say the current slowdown is merely a blip and that things are set to change for the better in a country where car ownership is as low as 13 per thousand people.

“The current slowdown is not here to stay as the fundamentals of car sales growth, namely urbanization and car density, are still very attractive," said Kumar Kandaswami, a senior director at Deloitte Touche Tohmatsu India Pvt. Ltd.

“It has been observed that per-capita disposable income, urbanization and car density have been the top three indicators of car sales growth in India," Kandaswami said in a report titled Driving Through BRIC Markets—Lessons for Indian Car Makers. BRIC stands for Brazil, Russia, India and China.

If inflation is curbed and disposable income grows faster, India holds a higher chance than most of its BRIC counterparts of witnessing accelerated growth in car sales, the report said.

Maruti Suzuki chairman R.C. Bhargava said the government’s policy on diesel cars holds the key to the car market’s growth in 2012, and a clear picture will emerge only after the budget defines the broader contours of the economy and sets the tone for economic growth.

Although car sales growth slowed in 2011, it had a silver lining. Unlike the 2008 downturn, when the slowdown was more broad-based and had an impact on buyers in all segments, the slowdown in 2011 has been confined to the small-car category, which accounts for 70% of total sales.

While the lower end of the car market—those with the engine displacement of up to 1.4L (priced up to 7 lakh)—has seen sales shrink 7.6% to 908,351 units in the months from April to November, the super-compact or sedan segment (those with a engine capacity of 1.6L) has seen sales rise 19% to 233,254 units.

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