Car sales rise for 14th month in a row: Siam3 min read . Updated: 12 Jan 2016, 01:30 AM IST
Softening interest rates and cheaper fuel help spur 12.87% growth, the highest ever for December
New Delhi: Car sales rose for the 14th straight month in December to 172,671 units, up 12.87% from a year ago, the Society of Indian Automobile Manufacturers (Siam) said on Monday.
The pace of growth has also picked up from November when sales of cars had risen 10.39% due to discounts ahead of the festivals like Dussehra, Dhanteras and Diwali, said the industry group.
Total sales of passenger vehicles rose to 230,960 units, up 10.46% year-on-year.
Indian auto makers report dispatches to dealerships and not sales to end users.
Incidentally, the car sales in December were also the highest ever during the month, which is considered to be slow for the auto makers as people prefer to buy vehicles registered in the new year.
“Passenger vehicles have seen decent growth. Volumes are also increasing. We are concerned about light commercial vehicles, but we think that growth in LCV follows once heavy commercial vehicle sales pick up," said Vishnu Mathur, director general of Siam.
The sales of medium and heavy commercial vehicles grew 19.34% to 26,017 units while light commercial vehicles grew 5.57% to 30,823 units.
“We are also concerned about the rural demand. In fact, rural markets are still subdued and sales of two-wheelers show that," Mathur said.
Sales of two-wheelers declined 3.10% to 1.16 million while the overall industry sales, including passenger vehicles, buses, trucks three-wheelers and two-wheelers declined 0.17% to 15 million units.
Since the beginning of the 2015-16 fiscal, passenger vehicle sales have grown 7.86% to 2.77 million.
Prospects of double-digit growth in the full year, given that December and February are typically lean months, are bleak for car sales, but Siam may come out with a revised forecast for next year after the Delhi Auto Expo that begins 3 February.
According to Abdul Majeed, partner and national auto practice leader at consultancy PricewaterhouseCoopers, growth has been fuelled by positive urban consumer sentiment, a gradual uptick in the economy and hopes that growth will accelerate in the coming quarters.
“There are many positive indicators to support the growth compared to couple of negative indicators," Majeed said.
The negative factors include poor demand in rural areas, because of a poor monsoon, and moderation in minimum support prices offered by the government for crops.
“People in the rural economy have become very uncertain about their cash flows," Majeed said.
Softening interest rates and cheaper fuel helped spur growth in the passenger car segment, but Siam said the real impact of these factors will be seen in a few months from now.
Between December 2014 and 2015, the average loan rates of nationalized banks for passenger cars have come down from 11.1% to 10.2%.
On 29 September, the Reserve Bank of India (RBI) cut its benchmark rate by 50 basis points (bps), its fourth cut since January. This prompted many banks to lower interest rates on loan offerings.
One basis point is one-hundredth of a percentage point.
“Banks will have to do more," said Sugato Sen, deputy director general at Siam. “Real impact of lending rate cut is yet to be seen."
Majeed said people will gradually shift from diesel vehicles to petrol vehicles because of uncertainties in diesel regulation. Diesel vehicles may also cost more with an increase in taxes in the future.
In December, the Supreme Court slapped a ban on the sale of high-end diesel passenger vehicles in Delhi till 31 March, made it mandatory for taxis to shift to compressed natural gas, doubled entry tax on trucks into the city and took 10-year-old commercial vehicles powered by diesel off the city’s roads.
India’s economic growth accelerated to 7.4% in the second quarter of the current fiscal, from 7.1% in the first quarter, riding on a spike in industrial activity.
Siam said it expects India’s gross domestic product to grow at 8.1% in 2016-17 as inflation moderates further and the fiscal deficit and India’s crude oil bill remain under control.