Car makers in the country reported falling sales in February by nearly 26% as high costs and sluggish economic growth continued to weigh on demand, resulting in the industry's first decline in annual sales in a decade. Car sales during the first 10 months of the current financial year that will end on March, 31 were down by 1.8% compared to the same period last year, according to the Society of Indian Automobile Manufacturers (SIAM). Sales grew a record 30% in 2011 and annual sales have grown every year since the financial year that ended in March 2003, according to data from SIAM.Indian car makers have been hit by high interest rates and rising fuel costs.
Over the past few years, billions of dollars of investment has poured into the industry from the world's biggest car makers, hungry for growth.Car makers had hoped incentives would be announced in the country's budget to boost the industry, but budget came with rise in taxes on some sports utility vehicles (SUV's), risking growth in the market's only bright spot.
Maruti Suzuki India Ltd, India's biggest car maker, said its car sales fell 10.9% in February. Hyundai Motor Corp's Indian unit, the country's No.2 said, its domestic sales dropped 7.6% during the month. Tata Motors, the country's third-largest home-grown car maker said, its February sales were down by 33%. The three companies account for nearly 75% of the car market.
On the other hand, Ford Motor Co's Indian unit said, its domestic sales fell 44% in February and Toyota Kirloskar Motor reported nearly 23.43 % decrease in its domestic car sales at 12,756 units in February 2013 which sold 16,659 units in the corresponding month of last year.
Mahindra & Mahindra Ltd, whose growth in sales of SUV's has been one of the industry's fastest said, its overall domestic sales rose 10 % in February, but its SUV's are not included in car sales data compiled by SIAM.
Passenger car sales, seen as an important guide to overall economic vitality, declined by 25.71% to 158,513 units in February from the same month in 2012, industry body SIAM reported. Passenger car sales grew by 20 to 30% annually in the decade until 2010-11, prompting foreign automakers to invest in India to boost sales globally.
The fall in passenger car sales was the biggest since a 40% slide in December 2000, SIAM said, and came as sales in China, the world's largest car market, have been seen gaining traction.
Amid excise duty hike on Sports Utility Vehicle (SUV) from 27% to 30% in the Union Budget, car makers had a difficult month in February with leading companies including Maruti Suzuki, Hyundai and Tata Motors, reporting decline in their domestic monthly sales as market continues to reel under tough macro economic conditions.
Total bus and truck sales – another important economic barometer slumped by 35 % in India in February. Even sales of motorcycles, the most popular form of personal transport fell by 4%.
According to the Society of Indian Automobile Manufacturers (SIAM), the sector will not be able to achieve the 0-1% forecast set for passenger car segment in the current fiscal. The two-wheeler segment also saw sluggish sales with the market Hero Motor Corp and TVS Motor witnessing their sales going down in last month.
The Indian auto industry, which is facing demand slump in recent months, gave a lukewarm response to RBI's decision to reduce short-term lending rates, saying the sector needs a cut of at least 100 basis points.
“The 25 basis points cut is nothing, we need at least 100 basis points reduction”, Society of Indian Automobile Manufacturers (SIAM) Deputy Director General Sugato Sen told. Although the RBI's move to slash the short-term lending rate or repo rate twice by 0.25 percentage points each in two months is a positive step, but it is unlikely to revive the sales immediately, he added.
“It is a too slow apace. We are reaching a desperate step, we need policy support”, Sen said. Even as RBI today cut the repo rate to spur growth and revive investment, it sounded a note of caution on further easing of rates on account of high food inflation and current account deficit.
Reacting to RBI's rate cut proposal, General Motors India Vice President P Balendran said, “This is a marginal decline we were expecting at least 50 basis points cut as inflation has moderated we were expecting CRR cut as well.” The rate cut will hardly make any positive impact on vehicle sales in the country, he added.
However, Toyota Kirloskar Motor Deputy Managing Director and COO (Marketing and Commercial) Sandeep Singh said, the industry will wait and watch as to whether this rate cut will help positively or not in the coming months. “This is obviously a good move for the industry. We were expecting this”, he added.
Expressing similar sentiments, Honda Cars India Senior Vice President (Sales and Marketing) Jnaneswar Sen said if the banks pass on the benefit of the rate cut to the consumers of auto loans, the industry will see some revival in sales.
With just a month left for the fiscal to end, SIAM said that it was certain that car sales would be in negative territory in 2012-13, the first decline since 2002-03, missing the earlier forecast of 0-1 % rise for the ongoing financial year.