India car sales shrink for first time in decade, hit by a slowing economy and high interest rates

India car sales shrink for first time in decade

POSTED: 10 Apr 2013 2:50 PM
URL: http://www.channelnewsasia.com/news/business/international/india-car-sales-shrink/633898.html

India’s passenger car sales shrank for the first time in a decade, falling 6.7 percent in the year to March, hit by a slowing economy and high interest rates, a top industry body said Wednesday.

NEW DELHI: India’s once red-hot car market shrank for the first time in a decade in the last financial year, industry figures showed Wednesday, underlining the scale of the slowdown in Asia’s third-biggest economy.

Passenger car sales fell by 6.7 per cent in the financial year to March 2013 to 1.89 million units compared with from 2.03 million the previous year, the Society of Indian Automobile Manufacturers (SIAM) said in a statement.

Sales in March alone plunged 22.5 per cent year-on-year, raising questions about huge investment programmes announced by foreign car companies, such as Ford, which are building new manufacturing capacity.

“The basic problem has been the big downturn in the economy and high interest rates. They have knocked sales,” Sugato Sen, SIAM deputy director general, told AFP.Asia’s third-largest economy is estimated to have grown by a mere five percent in the financial year to March 2013, its slowest pace for a decade attributed to low consumer spending and a slump in business investment.

Many blame the left-leaning government led by the Congress party which has presided over a period of high inflation and a string of corruption scandals which have knocked confidence since its reelection in 2009.

The last time annual car sales shrank was in 2002-03, SIAM said.

The performance was a far cry from SIAM’s forecast at the beginning of the last financial year of 10-12 per cent annual growth for 2012-2013.

“These figures have disappointed all our earlier forecasts — there has been a reversal in buying behaviour,” Sen said.

The gloom represents a turnaround from the scorching growth in most of the years up to 2010-11 when sales expanded 20 to 30 per cent annually, prompting foreign automakers to shift into the nation to offset weakness in developed markets.

Indian car buyers now are being bombarded with “buy now, pay later” offers as sellers battle to boost consumer demand. Other offers to lure buyers back into showrooms include interest-free repayments and discounts of up to 20 per cent.

To reduce inventories, automakers have been shutting production lines, while investment is already slowing, according to industry figures.

Out of the individual companies, passenger sales of India’s top carmaker, Japanese-controlled Suzuki Maruti, rose 4.4 per cent to 1.05 million units the last financial year.

French carmaker Renault, which re-entered India’s market just two years back, was a rare bright spot selling 52,463 units, a rise of 1,331 per cent helped by its popular $14,300 Duster SUV.

SIAM president S. Sandilya said the auto body expected car sales to pick up in 2013-2014, growing by three to five percent year on year.

“Last year was a bad year, no doubt about that, but we do hope that things will get better with some government initiatives which have been announced to boost growth,” Sandilya told a news conference.

“Ultimately, with this country’s population size (of 1.2 billion people), incomes growing, the low penetration of vehicles in this country — the future is very bright for the industry — that is a given fact,” he said.

SIAM says that the number of cars per 1,000 people in India is just 12.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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