Auto sales growth ‘to halve this year’

The good news first.

The domestic passenger vehicle market crossed the 2.5 million vehicle sales mark and neared 3 million unit production mark in FY11, with nearly 12 million two-wheelers and well over half-a-million (676,408) trucks and buses also being sold across the country in a single year.

And even though March showed a much slower growth rate all across, factory dispatches remained robust.

What’s more, if this growth momentum can be sustained this year, India would become the world’s sixth-largest automobile market, beating Brazil.

Now the not-so-good news.

March saw the lowest growth in passenger vehicle sales in eight quarters at 23%. Sales growth in two-wheelers as well as commercial vehicles were also the lowest in eight quarters at 20% and 13%, respectively.

Going forward, the Society of Indian Automobile Manufacturers (SIAM) has forecast that domestic vehicle sales growth will halve to anywhere between 12-15% against 26.17% seen last fiscal.
SIAM president Pawan Goenka acknowledged that retail sales, or sales from showrooms to customers, had begun to slow down and this was evident in higher incentives (or discounts) given out by car makers in March.

“But luxury car makers have seen robust retail sales growth because the new CKD (completely knocked down) definition could lead to price increases in the near future,” he said.

Goenka listed out the challenges for the industry in the coming months: significant increase in vehicle finance rates; continued hike in commodity prices, which would lead to increase in vehicle prices; and the differential excise on large cars. 

After a steady increase in the last six months, auto loan rates have hit the 15% mark whereas loans to buy trucks and buses come at 19%.

On the commodity price front, another year of 8-10% increase is expected.

On the issue of exports, though, SIAM appeared clueless, with no specific sops being sought from the government to catalyse moribund exports, especially passenger vehicle exports to Europe. For FY11, passenger vehicle export growth remained almost flat at 453,479 units (446,145 units).

Though overall vehicle exports grew almost 30% to 2,339,333 units (1,804,426 units), the lag in passenger vehicle exports is a cause for concern since this category accounts for about a fifth of the total vehicle exports from India. The biggest export contribution comes from two-wheelers, which accounted for almost two-thirds of overall exports at over 1.5 million units in FY11.