Indian carmakers will see only marginal sales growth at best in the fiscal year that ends in March due to high interest rates and increased costs, an industry body said on Tuesday, but said a cut in rates could spur a rebound next year.
Rising finance costs, higher prices of fuel and increased input costs for manufacturers have deterred buyers in Asia’s third-largest economy in recent quarters and hurt carmakers in one of the world’s biggest automobile growth markets.
Car sales are seen just breaking even in 2011/12, the Society of Automobile Manufacturers (SIAM) said in its third cut to an initial growth forecast of 16-18 percent, should a recent uptick in sales continue until March.
“If we do well in the next three months, we’ll break even,” said Sugato Sen, senior director at SIAM. “If we do extraordinarily well, it could go up to 2 percent.”
Thirteen rate hikes since March 2010 by the central bank have pushed up the cost of credit in a country where a growing middle class typically dependent on loans had made India the world’s second-fastest growing market after China.
Sales fell for the first time in three years in July, and hit a decade-low slump in October, as first-time buyers deferred or abandoned purchasing plans, with small cars — India’s biggest segment — hit hardest.
Car sales are down 2.3 percent so far this fiscal year that began in April against the same period a year previously.
After falling for four months, sales rose for a second month in December, climbing 8.5 percent from the same month a year earlier. If the Reserve Bank of India (RBI) begins to ease rates soon, that trend could continue into the coming fiscal year, SIAM said.
“(The coming fiscal year) is going to be a challenging year. But the indications are … RBI is not likely to increase rates further,” S. Sandilya, SIAM president, told reporters.
“Chances are they may even decrease. If they decrease it, it will immediately boost the sentiments of the customers and therefore you’ll have a higher demand.”
SMOOTHER ROAD AHEAD?
Car sales are seen growing 11-13 percent in the fiscal year that ends in March 2013, the industry body said, as part of a 10-12 percent growth forecast in total auto sales.
“If the pent-up demand starts getting released and if the cost of ownership doesn’t go higher than what it is today… that is what we are considering in this forecast,” said Vishnu Mathur, director general of SIAM.
Car sales rose an annual 30 percent in the year to March 2010, driving a slew of global carmakers such as Ford Motor Co and General Motors Co to ramp up their operations in Asia’s third-largest economy in search of growth.
A large, young population, rising salaries and a booming-middle class is seen driving long-term car demand in India, and industry executives at a recent auto event said that the current sales slowdown was a temporary phase.
If the RBI did begin to ease interest rates and India’s GDP growth improved from an expected 7 percent this fiscal year, carmakers could surpass SIAM’s target, industry analysts told Reuters.
Indian automakers sold 159,325 cars last month, SIAM said. Total sales for 2011 stood at 1.95 million vehicles, an annual rise of 4.2 percent.
Market leader Maruti Suzuki saw sales of its vehicles fall an annual 7 percent in December, while local rivals Mahindra & Mahindra and Tata Motors saw sales rise 26 and 22 percent respectively.
Tata, part of the salt-to-steel Tata Group conglomerate, said passenger car sales so far in the fiscal year to end-March are down 3 percent against a year previous.
Sales of trucks and buses, a key pointer to the country’s economic activity, rose 14.5 percent in December from a year previous to 72,192 vehicles, SIAM said.
Commercial vehicle sales stood at 774,874 in 2011, up 17.6 percent from a year earlier. The industry body said it expected sales to grow 18-20 percent in 2011/12, and 12-14 percent in the coming fiscal year.