Auto Market Feels the Heat of Rising Interest Rates

The Indian auto industry got off to a not-so-flattering start in the new financial year. The automobile market that has been growing at a healthy pace in the last 4 years has begun to feel the pinch of rising interest rates, as it appears. The two-wheeler segment that is the most sensitive to the fluctuation in interest rates, has taken a big knock, witnessing negative growth in April 2007. Beating the hardening interest rate blues and helped by promotional offers from manufacturers, dealers and financiers absorbing part of the interest squeeze, passenger vehicle domestic sales during April 2007 stayed on course growing at 11.8%, while domestic sales of CVs rose by 6.45% y-o-y. Domestic demand for 2 and 3 wheelers was down by 6% and 4%, respectively. Exports, however, continued to witness uptrend and lent respectability to the overall sales numbers to some extent.

Maruti Udyog Limited sold 48,652 vehicles in the domestic market in April 2007 vis-a-vis 41,574 vehicles in April 2006. In all, Maruti Udyog clocked sales tally of 50,352 vehicles in April 2007, including 1700 units of exports. Maruti’s volume in the domestic A2 segment, comprising Alto, Zen and Wagon R, grew by 20.3 per cent and the C segment (Omni & Versa) by 21.1 per cent during the month as compared to sales in April 2006. A3 segment that also includes SX4 despatches in April for readiness of its launch in May, slipped by 12.7%.

Hyundai Motor India Limited (HMIL) countered interest rate hike with special scheme to end up with a y-o-y growth of 4.8 % and 4.6 % in the domestic and export markets, respectively, during the month of April 2007. Hyundai Motor India sold a total number of 27,069 units during the month of April 2007. While the domestic market accounted for 15,728 units, the exports stood at 11,341 units.

Commenting on the sales trends in April, Arvind Saxena, VP, Marketing and Sales said, "With the increase in the interest rate there could have been a slump in demand but we took the timely measure of introducing a special scheme of 8.99% interest rate and this obviously helped us in keeping the momentum."

The segment-wise cumulative sales (domestic & exports) of HMIL in the month of April 2007 are as follows: A1 Segment - 22,550 units; A2 Segment - 4,399 units; A3 Segment - 24 units; A4 Segment - 65 units; and SUV Segment - 31 units.

 
Even as CV growth curve of Tata Motors Limited (TML) exhibited signs of flagging, the company’s passenger car business stayed on a positive growth track. Tata Motors reported a total sale of 40,486 vehicles (including exports) for the month of April 2007, a growth of 11% over 36,574 vehicles sold in April last year. According to the company, vehicle sales in the domestic market were impacted, in varying degrees in the commercial and passenger vehicles segments, due to the high interest rate regime affecting retails.

Tata Motors passenger vehicles business recorded a total sale of 16,842 vehicles in the domestic market in April 2007, reflecting an increase of 26% over April 2006. The Indica sold 10,870 units, up 28% y-o-y. The Indigo family registered sales of 2,632 units, witnessing a growth of 2%. The company’s utility segment comprising Sumo and Safari accounted for sales of 3,340 units, an increase of 49% over April last year. Safari sales at 1474 units grew by 269%.

The company’s sales of commercial vehicles in April 2007 in the domestic market aggregated 19,607 units, compared to sales figure of 19,674 vehicles a year ago. The sales of M&HCVs, which besides market conditions witnessed shortfalls in some critical components, were down 14% to 10,392 units. TML’s LCV sales at 9,215 units during the month grew by 22% over April 2006.

The exports of Tata Motors, adding up to 4,037 vehicles in April 2007 as compared to 3,572 vehicles in April 2006 and driven mainly by commercial vehicles, saw an increase of 13%.

Mahindra & Mahindra sold 7,201 utility vehicles in the domestic market during the month of April 2007 clocking a growth of 9.4% over domestic sales tally of 6,583 units in the corresponding month last year. The exports more than doubled from 63 units a year back to 147 units in April 2007.

General Motors India, fuelled by its latest offering Chevy Spark, registered an impressive growth of 22.2% in sales in April 2007 as compared to the corresponding month last year. GMI sold 4474 units in April 2007 as against 3662 units sold in April 2006. The April 2007 sales comprise of 1670 units of Chevrolet Tavera, 1306 units of Chevrolet Aveo, 317 units of Chevrolet Optra and 1181 units of Chevrolet Spark which was launched in the last week of April 2007.

Honda Siel Cars India Ltd (HSCI) saw its sales of cars increase by 7.5% to 4,891 units in April 2007 as against 4,551 units in April 2006. Model-wise break-up for April 2007: City ZX - 2916; Civic - 1481, Accord - 255; CR-V-239. In terms of the company’s performance in the calendar year 2007 so far, the cumulative sales have jumped from 17,444 units during January-April 2006 to 22,912 units during January-April 2007.

Ashok Leyland’s domestic sales in April 2007 were up 15.5% to 5,487 vehicles (4,750 vehicles in April 2006) and exports rose by 25% to 362 units from 289 units in April 2006. Total vehicle sales at 5,849 units climbed up 16% from 5,039 units a year earlier.

Hero Honda Motors Ltd (HHML) yet again reported better-than-industry performance with 4.86% growth of sales in April’07 over April’06 and continued with its good run of market share gain for the fourth consecutive month. The company’s market share in motorcycles crossed 50 per cent. The company sold 2,62,544 units during the month, a growth of 4.86% over 2,50,366 units of sale in April 2006, thereby once again bucking the industry trend. With this, HHML’s cumulative sales for the period January-April 2007 have gone up to 11,18,528 units.

Bajaj Auto Limited continued to witness drop in its motorcycle sales in the domestic market for the fourth month running. However, the company stayed on course, when it came to the export performance. Bajaj Auto’s two-wheeler sales aggregating 165,692 units in April 2007 fell by 13% from 190,964 units a year ago. The massive drop in domestic sales was made good in some measure by robust growth of over 66% in motorcycle exports.

3-Wheeler sales (domestic + exports) of Bajaj Auto at 24,360 units recorded a 15% growth over 21,159 units in April 2006, thanks again to continuing healthy growth in exports at 54.4%.

The company is expecting a turnaround in its sales numbers in the coming months with the launch of 135cc-DTSi Discover and other models in performance segment. The company is also expecting the correction in inventory pile-up at dealers’ end to be completed in May 2007.

Bitten by the slowdown bug, TVS Motor Company - another 2-wheeler major, was also in the negative terrain, recording sales figure of 104,893 units in April 2007 compared to 1 ,24,917 units in April 2006, which represents a significant fall of over 19%. TVS motorcycles clocked 53,499 units of sale in April 2007 as against 80,862 units in April 2006. TVS Scooty sold 18,798 units in April 2007 vis-à-vis 17,969 units a year ago. As for its export performance, TVS Motor Company exported 7,231 units in April 2007 compared to 7,000 units in the corresponding month previous year.

While the interest rate hike has applied brake on Motown, what is heartening is that the economy continues to perform well. The robust performance of industrial sector and the manufacturing sector, in particular, is expected to lift the sentiment, though the impact of hardening interest rates on economy may show up in the current fiscal.