Interest rates may hurt auto sales after the festive season
Moneylife Digital Team 02 September 2010

Despite interest rate and fuel price hikes, coupled with production constraints, Indian automakers have exhibited good sales numbers in August, which marks the start of the festive season

Indian automobile companies reported healthy sales numbers for August despite the recent hike in interest rates and fuel prices, coupled with production constraints. According to analysts, the smooth ride of automobile companies in terms of sales may remain in line with expectations until the festive season or till November. They fear increasing interest rates can hurt auto sales from the second half of the fiscal year. 

Dealers stocking pre-festive season helped to clock higher volumes during August 2010. Demand for vehicles continues to surpass supply despite the fact that most auto majors have hiked prices passing on the cost impact to the consumers owing to the high commodity prices and changes in the emission norms.
During August, automobile majors like Maruti Suzuki India Ltd, Tata Motors Ltd, Bajaj Auto Ltd, Mahindra and Mahindra Ltd (M&M) and TVS Motor Co Ltd (TVS) reported solid monthly sales numbers as companies tried to fill up inventories to meet expected strong demand in the coming festive season. The only exception was Hero Honda Motors Ltd, the country's largest two-wheeler maker, which reported muted sales for August.
Macquarie Research said in a report, “A normal monsoon season, improving consumer sentiment and an overall recovery in the economy should benefit auto sales. We expect sales numbers to remain healthy at least until the festive season, as inventory levels are below average. Increasing interest rates can affect sales in the second half of the fiscal year."
Maruti Suzuki, the Indian unit of Japan's Suzuki Motor Corp, reported a 24% increase in sales to 104,791 units aided by its highest-ever domestic sales at over 92,600 units. India’s largest vehicle maker Tata Motors said its sales rose 32% to 65,938 units during August, supported by a 34% increase in medium and heavy commercial vehicle (M&HCV) sales at the domestic level.
On the other hand, M&M, the country's largest utility vehicle maker, sold 42,338 units, an increase of 28% over the same month a year ago. The company’s sales were affected by a shortage of key components like tyres, castings and diesel fuel injection pumps, which is expected to be resolved by the third quarter.
Korean automaker Hyundai Motor Co's unit Hyundai Motor India Ltd reported an increase of 27% in domestic sales to 28,601 units, even as its exports fell 12.3%. In a release, Arvind Saxena, director for marketing and sales, Hyundai India, said, “The domestic demand continues to be strong and we have constraints in production due to some components supply. We are changing our production mix to meet this increased demand in the domestic market. We expect the demand in the domestic market to be even stronger in the coming festival season.”
Toyota Motor Corp's unit Toyota Kirloskar Motor Pvt Ltd said that during August, its sales rose 26% to 6,361 units from 5,045 units in the same month last year. New entrant in the domestic market Nissan Motor India Pvt Ltd, the unit of Japanese Nissan Motor Ltd, sold 1,249 units during the month, mainly led by its newly-launched small car ‘Micra’. Nissan India said owing to a strong demand for the top-variant of the ‘Micra’, it has realigned its initial production schedule and has also started a second shift at its facility at Oragadam near Chennai.
General Motors India has registered a growth of 34% in sales in August 2010, compared to the corresponding period last year. It sold 7,941 units in August 2010 against 5,939 units in the same month a year ago. The company has also ramped up production by adding second shifts at its Halol and Talegaon plants to meet the increased demand.
In a research report, Kisan Ratilal Choksey Shares and Securities Pvt Ltd said, “We expect strong CV sales numbers in the month of September due to buying before the implementation of new emission norms from 1st October, post which the prices of CVs are likely to be increased by about 4%-5%."
In the two-wheeler segment, while market leader Hero Honda came out with flat growth numbers, Bajaj Auto and TVS Motors have reported robust sales for August. Hero Honda’s total sales for the month stood 2% up at 424,617 units. It expects to improve sales further due to its planned introduction of four to five new models or variants during the rest of the current fiscal year and as the supply situation improves. 
Bajaj Auto continued to report its highest-ever sales during August as well. During the month, the company sold 329,364 units, including two-wheelers and commercial vehicles. In the motorcycle segment, its sales rose 59% to 289,176 units from 182,441 units in the same month last year.
During August, TVS Motors’ domestic sales grew by 29% to 148,000 units, while exports increased by 62% to around 19,000 units. The company’s motorcycle sales grew by 30%, while its moped and scooter sales grew by 27% and 43%, respectively.
After fighting it out in the car segment, two Japanese automakers, Honda and Suzuki are making their fight visible in the two-wheeler segment. While Honda, the earlier entrant in the two-wheeler market, is the leader in the scooter segment, Suzuki on the other hand is gaining ground. According to market sources, there is a waiting period of between two to eight months for Honda’s ‘Activa’ while the same for Suzuki’s ‘Access 125’ is one to two months. 
During August, Honda Motorcycle & Scooter India Pvt Ltd said its sales rose 38% to 132,330 units from 96,149 units while Suzuki Motorcycle India Pvt Ltd reported a 51% jump to 19,314 units from 12,809 units, in the same month last year.
"Going forward, as the festive season picks up further, the two-wheeler sales are quite certain to shoot up sharply; the only deterring factor here could be the capacity constraints that almost all OEMs are facing," said KR Choksey in a note.
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