High interest rates have pushed passenger cars to a slow and bumpy lane this year. To steer ahead, auto majors have launched new models, and stepped up efforts to bring still newer offerings. But high inflation and the consequent high rates have been holding prospective buyers from shelling out big bucks on their dream wheels.
This was evident from a significant drop in sales, on a sequential basis, in the first half of this calendar year. By June, overall passenger car sales were down 12.43% from January. The respective figures are 99,738 units against 1,13,899 units.
Despite the robust demand for Swift Dzire, launched end-March, Maruti Suzuki India Ltd, the country?s largest passenger car maker, saw a dip of 9.98% in domestic sales, at 48,935 units in June compared to 54,366 units in January. Similar was the fate of Hyundai
Motor India Ltd, India?s second largest passenger car maker. Despite the runaway success of the i10, launched towards the end of last year, turned in sales that were 9.95% less, at 21,877 units, in June compared to 24,296 units in January.
The third largest player, Tata Motors, too had a new variant of Indigo to cheer up buyers. But the falling sales of its hatchback, Indica, brought down the June figures to 13,307 units, a 12.8% descent from January?s 15,261 units.
The decline was the worst at Honda Siel Car India Ltd, which had been hit hard by two factors during the first half: the partial closure of its plant as well as the absence of Honda Accord from the premium car segment after its phase-out in December. Sales of Honda Siel went down by 40.8% to a mere 4,438 units in June from 7,498 units in January. However, with the launch of a new eighth-generation Accord, the company managed to lift its absolute numbers from a low of 3,128 units in April to 4,438 units in June, a growth of 41.8%.
The slump in sales has been the same even for General Motor India, with the company registering a decline of 24.9% at 3,024 units in June, against 4,030 units in January.
But two companies that have built upon their January numbers were Ford India and Fiat India. Both registered healthy double-digit growth, thanks to their smaller base and new products. While sales of Ford India went up by 36.6% to 3,071 units in June against 2,247 units in January, Fiat India registered a growth of 74.1% at 550 units as compared to 316 units in January.
?There are several factors that are acting against the automobile industry in India,? says Abdul Majeed, auto analyst and partner at PricewaterhouseCoopers. ?While high inflation has hit the sales of entry-level compact cars the most, high interest rates have had its bearing on the overall sales, as over 75% of vehicles in India are purchased on finance,? he explains.
The inflation rate has gone up from 3.79% at the beginning of January to 11.89% by the end of June. This had reduced the purchasing power of consumers and pushed up the lending rates of banks.
Leading auto financiers have hiked interest rates on auto loans four times since January. Consequently, the effective auto loans have gone up by 225-250 basis points after January, which means an increase of around Rs 500 in the EMI on a three-year loan of Rs 3 lakh. This, coupled with the increase in car prices in the range of Rs 5,000 to Rs 20,000, across different models around June has dented car sales.
However, car makers also had their share of luck during the first half. A reduction in the excise duty on small cars from 16% to 12% in the last Budget came as a blessing for small car manufacturers. Consequently, major players had seen a substantial growth in March vis-?-vis January. While sales of Maruti went up by 2.56% at 55,758 units in March, Hyundai registered a growth of 20.99% at 29,396 units, Tata Motors posted a growth of 19.1% at 18,177 units and GM registered an increase of 16.5% at 4,696 units.
The anticipation of price hike in April had resulted in substantial growth even in the sales of big car makers like Ford and Honda. Sales of Honda Siel went up by 14.2% to 8,568 units, and Ford posted a growth of 27.6% at 2,868 units and sales of Fiat also went up by 42.4% to 450 units.
Though industry players are optimistic that demand will pick up during the festive season when several new launches are scheduled, industry analyst feels sales would not pick up in a big way unless inflation eases and auto financiers lower the interest rates.
?Though Maruti is set to roll out A-Star, the compact car showcased at the Delhi auto expo, and even Tata Motors is claiming to be on track for the launch of its people?s car Nano, the possibility of a big turnaround in sales is slim unless the inflation rate comes down to a single digit, if not to the comfortable level of around 5%,? says a Mumbai-based analyst.
He adds: ?Moreover, if raw material prices continue to surge, as has been the trend from January, auto makers will have no option but to go in for another round of price hike, which will further pull down the market sentiments, making it harder for middle-income people to go shopping for cars.?
These are potholes car makers have to negotiate in the months ahead. The buyer is still at the amber light.
