Home >companies >Two-wheeler sales continue to dip; mixed trend for car makers

Two-wheeler sales continued to decline for the fifth straight month as higher loan rates forced customers to defer or avoid purchases even as companies readied new models to stimulate sales.

Hero Honda Motors Ltd, the country’s largest two-wheeler maker, reported a 14% drop in sales in July to 201,191 units, from a year ago. Rivals Bajaj Auto Ltd and TVS Motor Ltd also reported a 13% and 7% fall in July sales, respectively.

“The main concern at the moment is interest rates," said K.K. Mital, fund manager with Escorts Asset Management Ltd. “With the increase in CRR (cash reserve ratio, or the level of cash commercial banks have to maintain with the central bank), any

Shifting gears: With two-wheeler sales continuing to decline for the fifth straight month, players such as Bajaj Auto and TVS Motors are looking at launching new products to push growth

An increase in the level of cash reserves lessens the amount that banks can lend and thereby hampers their ability to offer loans at lower rates. That, coupled with a 4% increase in lending rates over the last eight months, has made it more expensive for consumers to borrow for two-wheeler purchases and other big-ticket items. The basic lending rate, set by the country’s central bank, is at 7.75%— a five-year high. Auto loans typically cost between 12% and 18% now.

In the April-June quarter, sales of motorcycles and scooters declined 9%, respectively, compared with double-digit growth for the past four years.

“The industry is looking at different products which will definitely boost growth, specially in the festival season," said Mital. While Bajaj is unveiling a new motorcycle next week, TVS has lined up nine new vehicles for launch in the rest of fiscal 2008.

Sales of cars and utility vehicles showed a mixed trend with some companies reporting a dip in sales as higher lending rates dampened growth and capacity constraints squeezed supply, while others rode on new launches and marketing schemes to grow sales.

Maruti Udyog Ltd, the largest car maker in the country, sold 52,839 vehicles in May this year, up 18% up from a year ago as it introduced promotional schemes for its employees, those of its parts suppliers and increased sales to rural markets. “Our special schemes such as vendor scheme, panchayat scheme and employee scheme helped in June and July," said Jagdish Khattar, managing director of Maruti Udyog Ltd. “Without that, our sales (growth) would be flat."

Rival Hyundai Motor India Ltd reported a 7% decline in domestic sales to 15,002 as it diverted more of its output to “serve a backlog of exports", a company spokesperson said.

Among other car makers, Mahindra & Mahindra Ltd, India’s largest utility vehicle maker, reported a 45% increase in passenger vehicle sales to 18,536 units. Honda Siel Cars India reported a 17% dip in sales to 4,533 units. The local unit of General Motors Corp. reported 87% growth in sales to 4,570 vehicles. Growth was led by the Chevrolet Spark, a small car, which the company launched in April.

“Passenger vehicle firms will post at least single digit growth in the second quarter due to new launches and continued demand for higher-end vehicles," said Huzaifa A. Suratwala, senior analyst with Networth Stock Broking Ltd.

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