Auto St’s dream ride hinges on Dec data

Having veered off the track in November, will auto sales come back strongly in December? That is the question the street is asking as the sector’s best year to date draws to a close.

As per Society of Indian Automobile Manufacturers (Siam) data, November saw domestic passenger car sales drop to 161,497 units from 182,992 units in October. Sales of commercial vehicle too fell, from 50,835 units in October to 48,314 units, and of two-wheelers from 1,127,827 units to 930,370 units.

The drop comes as the industry saw growth of about 30-32% this calendar year, with October seeing domestic passenger car sales cross the one million unit mark. The performance had even buoyed Siam into doubling its passenger car sales projection for the current fiscal to 23% from the earlier 12%. It sure seemed like a pretty smooth ride for vehicle makers. Until November data released.

Suddenly, there is a big question mark on the sector. Rising interest rates, long waiting periods and rising fuel prices, which contributed to the November rain, could well dampen customer sentiment and demand in the months ahead too.

“With huge capacity constraint, we expect the growth in the auto industry to be slightly on the slower side in 2011. The supply of auto components is limited, leading to slower OEM productions,” said Ronak Maniar, an analyst with IDBI Capital Market Services.

According to a report released by rating agency ICRA, even the auto component industry is under huge strain due to pricing pressure from OEMs, threat of rising commodity prices, likely hardening of interest rates and import from lower-cost locations.

“Availability of finance, rising inflation rate, fuel prices can be some of the factors leading to a southward shift in auto demand, though we do not foresee a drastic change as all segments are growing,” said Rakesh Batra, national leader (automotive sector), Ernst & Young.

With raw material prices rising, most auto players have also announced intentions to hike vehicle prices from January. Among the major players, Maruti Suzuki, Hyundai Motors India, Bajaj Auto, Tata Motors and Volkawagen plan to raise prices by 1.5-2.5%.

This too could pose a hurdle for sales, feel industry experts.

Analysts see demand in the range of 18-20% for 2011.

The companies aren’t giving away any apprehension for now.

“We have no indication on the fall in market demand. We see the positivity continuing,” said an official from Maruti Suzuki.
Most of the major players, including Maruti Suzuki, are building capacities to meet the exponential demand of vehicles. Maruti currently has a waiting period of 6-8 months on its popular models like Swift, Dzire and Eeco, while Toyota has waiting periods of around six months. In two-wheelers, too, companies like Honda and Bajaj have long waiting periods.

The long waiting periods augur well for new entrants such as Volkswagen, Nissan and General Motors.

“With continuous waiting period, customers might shift their loyalties to other brands. But barring Maruti Suzuki, I don’t see any other company facing problem of ramping up capacities,” said Mahantesh Sabarad, senior vice-president - equity research at Fortune Equity Broker.