Automobile industry shows first signs of wheels slowing

The chimera of slowdown seems to have started haunting automakers again.

Rising inventories, decreasing footfalls and falling enquiries at car showrooms all through March have caused worry lines to expand. Some of these signals were seen in February, too, but it is only now that the sales momentum has begun taking a hit.

It remains to be seen whether the Navratras, the traditionally auspicious car buying season across north India, which begins next week, and the marriage season in May reverse this decline.

Car makers and dealers, however, are not unduly worried yet and are hoping the June quarter would bring better tidings. Also, the slowdown appears to be limited to urban consumers, with rural pockets not reporting any such signs till now.

According to Edelweiss’ Sachin Gupta and Chetan Vora, a car dealer survey shows that the inventory of Maruti and Hyundai dealers has increased to 30-45 days (against 15-20 days earlier) across dealerships in Tamil Nadu, Kerala, Gujarat, Delhi NCR, Haryana and Punjab. The analysts cite rising interest rates and some moderation being seen in “hyper” growth rates of the past two years to drive home the point.

Karnataka, though, is an exception, with no signs of either inventory build-up or sales slowdown, according to the Edelweiss analysts.

Across cities, car financing rates on some models have risen to 13-14%. Some OEMs are flooding dealerships with cars because of fiscal year-end pressures and rising taxation on diesel cars in Delhi is also causing some of the slowdown.

Despite these negatives, the industry is hopeful of achieving 10-12% volume growth in FY12.

Shashank Srivastava, chief general manager - marketing at Maruti Suzuki India, told DNA the growth in dispatches remains strong. “But retail sales (sales to customers from dealerships) have slowed down. Traditionally, in March, there is fast off-take of cars from dealerships but we haven’t seen high retail  sales so far.” Maruti accounts for every other car sold in India so that a slowdown in retail sales at its showrooms mirrors the industry trend.

A Hyundai spokesperson denied any inventory build-up at dealerships but acknowledged that overall sales growth this year would not be as high as last year.

Sandeep Aggarwal of Him Motors in Delhi, a Tata Motors dealership, said sales growth in March over February will remain flat.

“Some models like the old Indigo and some models of Fiat are facing a pick-up problem,” S M Bafna of Bafna Motors, a Tata dealer in Maharashtra, said.

Maruti dealer Rajiv Gambhir of D D Motors in Delhi said inventory levels have risen somewhat, but the real test will come in the June quarter. Dealers of Tata, Hyundai and Maruti cars across Delhi NCR indicate that enquiries are down by 10% over February and sales lower by at least 3-5%.

High financing cost is a big deterrent to car buying in urban pockets.

Sumit Bali, CEO- car finance, Kotak Mahindra Prime, said interest rates on car loans have increased by 150 basis points since December.

Ramesh Iyer, MD, Mahindra Finance said rising interest rates will not affect the semi-urban and rural markets as these markets are generally cash-rich. “We are still witnessing shortage of vehicles.

However, with fuel and car prices going up and interest rate rising, people are expecting some slowdown. The overall sentiment is slightly negative. So far, March has been a good month for sales of cars due to depreciation benefits. But we are expecting the market to slow from April onwards.”