High fuel prices, interest rates slow auto sales

High fuel prices, interest rates slow auto sales

Mumbai: Automobile sales in India grew at a much slower pace in May as high fuel prices, interest rates and higher car prices discouraged buyers from purchasing new vehicles.

Monthly sales data released by auto makers on Wednesday showed that sales at most car makers either remained flat or contracted from a year-ago period as they despatched fewer vehicles in an effort aimed at clearing dealer-level inventories. Auto makers in India report despatches to dealers, not sales to customers.

Mint reported on 30 May that inventories at dealers have increased from 20-25 days to 40-45 days in the last four months.

Vineet Hetamasaria, analyst at Pinc Research, an arm of Pioneer Investcorp. Ltd, said: “The sales have slowed because inventory has accumulated in the system since February." Buyers will postpone their purchasing decisions with the onset of monsoon later this month, and car makers will report a double-digit growth only from September, he added.

Dealers had placed orders for more vehicles before the February budget, anticipating an increase in excise duty.

With interest rates set to rise further and inflation continuing to head northwards, auto makers, too, foresee depressed sales in the coming months. The interest rate on auto loans has gone up 2 percentage points to 12.5% in the last nine months, said Hetamasaria.

Domestic sales at market leader Maruti Suzuki India Ltd expanded merely 3.9% to 93,519 units, the lowest growth in two years. The company also saw exports decline 13%.

Shashank Srivastava, chief general manager (marketing) at Maruti, said: “Higher interest rates coupled with increase in petrol prices have weakened buying sentiments."

According to Srivastava, the increase in petrol prices has led to a higher demand for diesel cars and increased waiting period for the company’s diesel models. For some of the models such as the diesel Swift, the waiting period has almost doubled to five months, he added.

Led by the newly launched sedan, Verna Fluidic, sales at Hyundai Motor India Ltd rose 14% to 31,123 units. The company said it has received bookings for 12,000 units so far. Hyundai, too, saw its exports decline by 15%.

Tata Motors Ltd, the third largest car maker by sales, saw a 9% contraction in sales to 19,401 units. The volumes were primarily dragged down by the company’s flagship Indica and Indigo models, demand for both of which plummeted by one-third each. Sales of its small car Nano continued to rise, though, and grew 84% to 6,515 units—the sixth straight month of growth.

Ford India Pvt. Ltd, which has been turning in high sales on back of its compact car Figo, too, saw a dip in domestic sales. It sold 7,046 units against 8,080 units in May 2010. The firm exported around 2,000 units last month. There are no comparable figures for 2010 as it had started exports in the second half of last year.

Mahindra and Mahindra Ltd (M&M) seems to be an exception as the demand for its utility vehicles continued to expand at a brisk pace. It sold 32,159 units (including commercial vehicles and cars), an increase of 19% over last year.

Hetamasaria attributed this to M&M’s ability to manage inventories better.

Some foreign car makers continued to grow rapidly on account of a low base or a launch. For instance, ŠkodaAuto India Pvt. Ltd sold 2,761 units against 1,381 units over a year ago, while sales at Toyota Kirloskar Motor Pvt. Ltd went up 12% to 7,470 units over last year on account of demand for its new Etios sedan.

Driven by its small car Micra, sales at Nissan Motor India Pvt. Ltd also rose to 1,588 units in May compared with 56 units last year, but sales at General Motors India Pvt. Ltd remained flat at 8,329 units.

Meanwhile, motorcycle and scooter sales continued to grow at a healthy pace and most manufacturers reported double-digit growth. Market leader Hero Honda Motors Ltd led the pack with a 14.2% increase to 520,000 units. Experts say demand for motorcycles and scooters usually increases when petrol prices rise because they are more fuel-efficient than cars.