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Petrol, Interest Rates Drive Car Sales South, No Respite In Sight

APRIL 11, 2013

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The country's annual car sales have declined for the first time in a decade due to rising petrol prices, high interest rates and a slowing economy. It has forced global automakers to review their India strategies.


The Indian car industry which was zooming at a 30 % growth rate, next only to China’s, has seen a dramatic fall. Plants have been forced to slash production, leaving huge under-utilized capacities. The Tata factory in Sanand, Gujarat produced only 1,282 Nano cars from a plant that can churn out 250,000 cars a year. Tata is India's worst-performing carmaker this year, with car sales plunging almost 41 %. Its capacity utilisation story is mirrored across the industry.


No surprise, therefore, that anxious cos should offer huge discounts to clear inventories piling up in showrooms. The biggest discounts are on models that account for volume sales. Luxury cars like Audi are also being offered with freebies and hugely attractive payment options.


While the surging sales of SUVs have been a bright spot for some, sales of smaller cars like Alto and WagonR,  i10 and Spark that account for most of the cars sales have crashed this year. As per data released by the Society of Indian Automobile Manufacturers (SIAM), passenger car sales in 2012-13 were 18.95 lakh cars, compared to 20.31 lakh units in 2011-12. The body does not foresee any improvement in the sales this year too as car sales are likely to grow by 3-5 % only.

The only bright spot is a spike in demand for sport utility vehicles (SUVs). The sales of off-road and cross-over models grew by over 50 % in the past 12 months. Mahindra and Mahindra grew its passenger vehicle sales by 27 % last fiscal while Renault sold almost 40,000 of its budget SUV Duster.

However, sales of SUVs and vans are not part of the car data released by SIAM. But here too, the signs are ominous as sales, helped by cheap diesel, are slowing down in the wake of the government moves to reduce fuel subsidies.




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