India’s car market is booming!

Mangalore - India A surging economy and new models saw passenger vehicle sales in India boom in 2010, making the country the world’s second-fastest growing market, ahead of developed ones like Japan, Brazil, US and UK, lagging only to China.

If this was not enough, the country grew at the fastest pace in sales of commercial vehicles, even ahead of China, mainly backed by growth in infrastructure.

This fast pace, though, is likely to moderate as rising interest rates and firmer commodity prices, coupled with high inflation, are set to dampen sentiments and pull down the demand.

Sales of passenger vehicles grew 31% in India in January-November 2010 (see chart), ahead of 10% growth in Japan, 9% in Brazil, 5% in the US and 3% in the UK. Sales in China, which has emerged as the world’s biggest car market, grew 39%, according to figures provided by Society of Indian Automobile Manufacturers (Siam). Some of the other big markets could not even manage to stay afloat as France shrank 1% and Italy 7%.

But India beat the dragon in commercial vehicles as sales in this segment shot up by 47% in January-November 2010, ahead of Brazil’s 41%, China’s 25%, US’s 18% and UK and Germany’s 15%. “After slow years in 2008 and 2009, last year saw demand for commercial vehicles shoot up due to the healthy economic growth and infrastructure development as well as the stimulus packages of the government. All indicators remained healthy, leading to sustained buying,” said Abdul Majeed, a partner at Price Waterhouse.

“While the Indian market may be small in absolute numbers compared to some of the above markets, factors like high growth rates as well as low vehicle penetration mean that India may soon catch up with them in the coming years,” an analyst said.

India’s rising status in the global auto market can be gauged by the fact that the country now accounts for 5% of the global auto production, much higher than 1.4% at the beginning of the last decade, Siam said. Also, India has broken into the top 10 highest auto producing countries, standing at the seventh position in 2010 against 15th in 2000.

“A sustained and healthy economic growth, easier financing rates, new models and a surge in stock markets are among the reasons that pushed numbers in the year gone by,” said Siam president Pawan Goenka.

However, there are some concerns. The rapidly rising interest rates are the “biggest worry” for the auto industry. “After holding steady for eight to nine months, the interest rates have started hardening and have moved up by about three percentage points in the last four months,” Goenka said. Rising inflation is leading to higher interest rates and EMIs on car loans.

Rising costs of inputs is also worrying the auto industry as it may be forced to raise vehicle prices, which may hit their affordability and thus demand. “The 30%-plus growth may not happen in the coming quarters and may moderate. We would be happy with 12-14% growth, though 15-16% rise could be possible over a five-year horizon.”

On the commercial vehicle front, worrying signs are already building up as growth rates have been constantly declining over the last few successive quarters. While sales moved up 98% in the third quarter of the last fiscal (Q3FY10), the pace of growth declined to 86% in the following quarter (Q4FY10), 55% in Q1FY11, 31% in Q2FY11 and came down by 22% in Q3FY11.

Source:- Times of India