Sales of entry-level cars dip in August; 2-wheelers upbeat

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New Delhi, Sep 1: Pricey fuel, costly loans and high inflation have shrunk the population of small & compact car buyers, denting the prospects of India’s largest passenger carmaker, Maruti Suzuki Ltd. But, the bad news for carmakers apparently brought cheers to two-wheeler makers.

August figures show Maruti’s sales dropped, the first time this year, by 10.15% in the domestic market. Maruti, which has a market share of around 52% in passenger cars, sold 54,113 units last month against 60,229 units in August last year.

Rival Tata Motors, the third largest player, posted a dip of 6% in the sales of passenger vehicles at 15,573 units in the home market against 16,620 a year ago.

On the contrary, good agriculture, and hence, greater money in the hands of rural India as well as greater availability of finance--after manufacturers like Bajaj have ventured into the two-wheeler finance—helped the two-wheeler industry post a positive growth last month.

For Maruti, the A1 segment, which includes Maruti 800, was the worst hit, despite the recent launch of an LPG variant. The sales of the 800 model declined 32.2% at 3,717 units vis-à-vis 5,480 units. The A2 segment, which includes Alto, Wagon-R, Zen and Swift, posted a dip of 9.7% at 37,667 units compared to 41,736 units a year earlier. However, the A3 segment, comprising SX4 and Swift DZire, registered a growth of 12.2% at 5,427 units against 4,839 units.

For Tata Motors, its only product in the A2 segment, the Indica, posted a dip of 31.9% last month at 7,756 units compared to 11,389 units a year ago. However, Indigo and indigo Marina in the A3 segment recorded a combined sales of 4,460 units vis-a-vis 2,186 units, a growth of 104%.

“The four-wheeler industry is feeling the crunch of liquidity, with only banks financing it, that too at exorbitant rates, unlike the two-wheeler industry where manufacturers like Bajaj Auto are growing their finance business. Consequently, people who generally migrate from two-wheelers to four-wheelers and opt for entry-level cars are holding back their decision of buying a car till there is some ease on the finance side,” says Abdul Majeed, analyst, PricewaterhouseCoopers.

"This has resulted in a low outflow of money and subsequently a slowdown in demand for entry-level cars," he adds.

Though India's second largest passenger car manufacture, Hyundai Motor India, posted a growth of 34% in the domestic market at 21,610 units in August this year against 16,138 units in the corresponding month of 2007, analysts feel that the overall low sentiments have impacted the entry-level and compact car segment the most.

"Inflation has breached the 12% mark and the interest rates are hovering at an all-time-high of 14-15%. As such, the entry-level car buyers, who have limited funds to manage their day-to-day affairs, have postponed their buying decision. This has impacted the sales of entry-level and compact cars," says an industry expert.

In contrast, two-wheeler sales have surged last month, with all leading players seeing a positive growth. Hero Honda Motor Company, India's largest two-wheeler manufacturer with a market share of 55%, registered a 26.8% growth in sales at 3,05,516 units in August compared with 2,40,875 units in the corresponding month last year. Similarly, sales of Bajaj Auto went up by 4% at 1,76,631 units vis-à-vis 1,70,203 units. Chennai-based TVS Motors also saw a growth 11% in total two-wheeler sales at 1,14,321 units against 1,02,734 units.

"The agriculture has been good this year and with the waiver of farm loan happening, there is ample cash in the hands of people in rural India. Since this class constitutes a huge part of the total two-wheeler sales, the demand for motorcycles has also gone up," says a Mumbai-based analyst.