Two-wheelers drag total vehicle sales down in fiscal 2008

Mumbai: In a sign of cooling consumption, vehicle sales in India,

Asia’s third largest market for automobiles, slid in fiscal 2008 as
higher interest rates, dwindling vehicle financing and inflation at a
three-year high made it hard for consumers to spend on big-ticket
items such as cars and two-wheelers.
Turbulent Times (See Graphic)
Overall sales of passenger cars, trucks and two-wheelers dropped
4.7% in the year ended March, according to the Society of Indian
Automobile Manufacturers (Siam), an industry body.
Sales of passenger vehicles rose 12.2% to almost 1.5 million vehicles,
mostly led by new models such as Hyundai Motor India Ltd’s i10 small
car.
Two-wheeler sales bore the brunt of the decline, with sales dipping
8% to 7.25 million units, as higher interest rates and lack of financing
played spoilsport for the sector during the year.
In March, however, overall vehicle sales were up 1.8% from a year
ago. Passenger cars were up 11% during the month, while two-
wheelers remained little changed from the year-ago period.
Sales of two-wheelers, the entry-level vehicle for most people, are
mostly dependent on bank loans, which in the rural pockets seem to
have dried up as banks have grown wary of lending to a class that is
feeling the pinch of the high cost of living, or inflation, and on rising
repayment costs on loans because of interest rates that haven’t
budged from high levels in the past two years. Banks have also been
ticked off by the country’s highest court for arm-twisting clients for
repayments.
“The two-wheeler industry is passing through turbulent times due to
consumer sentiments being low and various other factors like finance
options being limited, availability as such being low in some pockets
and consumers’ affordability being under pressure,” said N.R.
Narayanan, group business head (vehicle loans) at ICICI Bank Ltd.
The bank has been an aggressive lender of loans for both homes and
vehicles.
In two-wheelers, Hero Honda Motors Ltd, India’s largest bike seller,
managed to sustain sales, while rivals Bajaj Auto Ltd and TVS Motor
Co. Ltd saw double-digit declines in fiscal 2008. Hero Honda sold
more than 3.24 million vehicles in the year. Its sales in March were up
15% to 308,052 units.
Meanwhile, Bajaj Auto’s sales in the year dropped 20% after it sold
about 1.68 million units. Its sales in March, too, were dismal at 114,436
units, down 20% over the same month last year.
Sales at TVS Motor during the year slid 19% to 1.15 million units,
while its March sales stood at 103,975 units, a decline of 13% over the
same month a year ago.
Struck by declining vehicle sales, a leading indicator of economic
growth, India’s finance minister P. Chidambaram had reduced the
excise duties on small cars and two-wheelers by 4 percentage points
in his Budget for the current fiscal year. But vehicle makers are facing
rising costs of commodities such as steel that they as raw material,
and the reluctance of banks to lend, which together are eroding their
sales and profits.
In passenger vehicles, Maruti Suzuki India Ltd, which makes half of
the cars sold in the country, increased sales 12% to 711,824 units in
fiscal 2008. Maruti’s sales in March remained flat at 64,421 cars.
South Korean Hyundai Motor Co.’s local unit posted an 11% uptick in
sales in the fiscal, while sales of passenger vehicles at Tata Motors
Ltd, India’s largest auto maker by revenue, was up just 0.44% at
227,919 units. March sales at Hyundai rose 52%, while Tata Motors
sales were up just 3% that month over March 2007.
“We expect (sales of) passenger cars to grow this year. However, the
growth might be hampered due to high interest rates. With inflation
rising, we don’t expect RBI (the Reserve Bank of India) to cut rates so
soon,” said Neeraj Bandhu, manager, South Asia vehicle forecasts at
CSM Worldwide, a consultancy.