Rising Car loan rates, costly fuel keep auto sales in slow track

Maruti Suzuki India Ltd, the country’s largest car maker, reported a 13% fall in sales over a year ago to 91,442 vehicles in August, the company said in an statement. The disruption in production at its Manesar plant caused by labour unrest in end-August adversely impacted the sales numbers during the month, Maruti said.

The industry is worried the lean period may extend into the festival season. New launches, discounts and freebies failed to spur auto sales in August as rising car loan interest rates and higher fuel prices kept buyers away from showrooms.

“The inquiry levels are high. We are seeing footfalls in our showrooms, but they are not converting into sales. A turnaround will not be as fast as it was expected,” said Shashank Srivastava, chief general manager, marketing and sales, Maruti Suzuki.

At Hyundai Motor India Ltd, the country’s second largest car maker, sales inched up to 51,030 units in August from 50,633 a year ago. Tata Motors Ltd’s sales declined 2.84% to 64,078 units. Sales of its small car Nano, the world’s cheapest car, fell 85% to 1,202 units.

“The biggest problem is liquidity and interest rates. Financing is a concern,” said Abdul Majeed, auto practice leader, PricewaterhouseCoopers (PwC). “Banks and NBFCs (non-banking finance companies) have slowed down in giving loans, and this comes at a time when another round of rate hike is expected by RBI (Reserve Bank of India) later this month. Given these conditions, I think sales during upcoming festive season may not be on expected lines.”

Around 80% of car purchases in India on Car Loan.

RBI has raised policy rates 11 times since mid-March 2010 to rein in inflation. Besides, the government increased the price of petrol by Rs.5 a litre in May—the biggest hike since June 2008.

Car makers failed to boost sales despite offering hefty discounts. Discounts on Maruti and Hyundai models ranged between Rs.20,000 and Rs.40,000. Tata Motors, for the first time, offered a discount of up to Rs.25,000 on the Nano. Honda Siel Cars India Ltd offered a discount of Rs.1.75 lakh on its outgoing Jazz model.

Even new car launches—at least 13 were introduced in August—failed to enthuse buyers.

“The market continues to be tough and there are no signs of recovery in the immediate future. The rising fuel prices and interest rates have been instrumental in this sluggish market trend,” said Arvind Saxena, director (marketing and sales), Hyundai India​.

“The numbers were also down due to a higher base of last August,” said Majeed of PwC.

Volkswagen AG​ and Ford, though, bucked the trend. Volkswagen sold 6,091 vehicles in August, a growth of 72% over last year; sales at Ford grew 9% to 8,914 .

“It was bound to happen as companies like Ford, Volkswagen have introduced some products which are loaded with features and are highly price-competitive at the same time,” said an expert with a consultancy firm who did not want to be named.

Utility vehicle maker Mahindra and Mahindra Ltd also posted robust growth in sales, but mostly due to a low base last year. Its sales rose 30.38% to 37,684 units.

Source: Bloomberg

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