The sector has witnessed two years of healthy growth, but inflation, higher interest rates and rising prices of fuel may muddy the waters for the automobile industry

The start of the fiscal year has traditionally been a weak period for the Indian automobile industry. According to a report released by PINC Research today, most of the major auto manufacturers have reported a moderate growth in sales volumes.

In the commercial vehicles category, buyers tend to pick up their vehicles in March to avail of tax benefits. Ashok Leyland was the worst performer in this category, with its sales dropping by 14.7% on a year-on-year (Y-o-Y) basis to 5,543 units in April 2011. Tata Motors managed 18.7% Y-o-Y growth and sold 39,928 units in April. According to the report, Ashok Leyland has said that the elections in Tamil Nadu, a major market for the manufacturer, has caused the drop in sales.

However, the two-wheeler segment reported healthy sales, with market leader Hero Honda reporting all-time high dispatches. On a Y-o-Y basis, Hero Honda clocked a healthy 39.1% growth—it sold 5,17,099 units in April 2011, compared to the 3,71,652 units that it had sold in the same month last year. Bajaj Auto reported a decent 16.7% growth to 3,22,235 units, mainly helped by the clearance of its export backlog. Suzuki has managed to register the highest Y-o-Y growth rate (41.40%), but that was because of a low base (it sold 20,771 units in April 2010).    

Among passenger vehicle manufacturers, Honda was the worst hit (43.8% Y-o-Y drop in sales to 2,012 units). Despite the international problems of vehicle recalls that Toyota has been facing, it managed to sell 9,681 units in April this year, compared to 6,003 units that it sold in April 2010, translating into a healthy 61.30% growth. New entrants seem to have found acceptance in the market—Volkswagen sold 7,000 units in April, a 370.10% Y-o-Y growth, albeit on a low base (1,489 units in April last year). But the biggest shocker has been the performance of market leader Maruti Suzuki (4.4% growth) and Hyundai (0.1%). PINC says that Maruti’s poor performance is due to a “sharp drop in dispatches in the compact car segment.” This would mean that Maruti might have to go back to the drawing board and rework its product mix. Tata Motors managed to inch along at a 3.8% growth and sold 24,455 units in April 2011. One reason for this sluggish performance from Tata Motors in this category is surely due to the subdued sales of its much-hyped Nano. The company had set itself a monthly sales figure of 15,000 Nano cars in 2011. But the car’s sales crossed the 10,000 mark only in April, after months of poor performance. On an overall basis, according to the report, dispatch figures for the month grew by 12.4% Y-o-Y in the passenger vehicles segment.  

Three-wheeler sales continue to chug along—market leader Bajaj Auto sold 45,074 units (20.7% up) in April 2011, but Mahindra & Mahindra is snapping at its heels, with 44.7% growth (although on a low base, it had sold only 3,048 units in April 2010). TVS Motor is still in the race, clocking 43.4% growth—it sold 3,561 units in April this year. 

As the report states, after two years of rapid growth, the auto sector might see a period of moderation. But the deadly troika of inflation, rising fuel rates and a higher interest rate regime might muddy the waters for the industry.