Car sales slowest in two years

Business

oi-Shoaib MD

By Shoaib Md

Published: Thursday, June 9, 2011, 13:36 [IST]

Car sales in India grew a tepid 7% in May 2011 over last year for the corresponding month. This has been the slowest pace over the last two years. High fuel prices, higher interests and increase in cost of vehicle has affected the demand in the world's second fastest growing auto market.

During May 2010 Indian automakers sold 1,48,425 vehicles compared to 1,58,817 cars during May 2011. The data was from the Society of Indian Automobile Manufacturers (SIAM).

These numbers are the lowest since May 2009 when sales increased only 2.77%. In 2010, sales was up by 30%.

Experts feel, that based on current data, the target for fiscal 2012 will not be achieved.

SIAM suggest that local auto sales growth will halve to 12-15 percent in current fiscal. It grew a record 30 percent in 2010 to 1.98 million units. This demand had support from the increasing number of middle class in Asia's third-largest economy. Plus easier access to loans and a wider choice of models is also helped surge in demand.

Sales of trucks and buses, which points to the economic activity, went up by 16.16% from a year earlier, SIAM said.

Record increase in petrol prices i.e. of 8.6 percent in May, has affected the stock market sentiments on auto stocks. Investors perceive this as the reason for slowdown in demand for passenger vehicles. And with likelihood of another round of increase in interest rates is expected to curb buying apetite of the customers.

India's central bank, which has raised interest rates nine times since mid-March 2010, is expected to raise them again on June 16 when it reviews policy.

On the other hand Indian automakers are worried about rise in commodity prices. Maruti Suzuki, Tata Motors and Mahindra and Mahindra having already raised their prices on vehicles by an average 1.5 to 2% this year.

Update:

Strike at the Maruti Suzuki's Manesar plant continues for the sixth day. The strike has on an estimated basis incurred a loss to the extent of Rs 210 crore.

The spread on Tata Motor's CDS (credit default swap) has increased as investors' perception of risk with the company has detoriated.

OneIndia Money