Trucks lead the sharp sales fall

Most vehicle manufacturers saw their sales drop substantially during November 2008 compared to the previous year as high interest rates of 15 to 16 percent, difficulty in getting vehicle finance and poor buying sentiment put pressure on sales.

While passenger car sales declined 21.4 percent, utility vehicle sales fell by by 35.5 percent resulting in total passenger vehicle sales dropping by 23.3 percent to just 98,600 units during the month. During April to November 2008 the passenger vehicles segment grew just 1.1 percent over the same period last year with passenger car growth remaining nearly flat at just 0.48 percent, while utility vehicles fell by 0.21 percent and multi-purpose vehicles growing by 12 percent in this period. With around 65 to 70 percent of passenger cars being bought on finance, their higher cost and poor liquidity is clearly putting increasing pressure on sales.

However, the commercial vehicle segment, where 95 percent of purchases are done on finance has been worst affected by the slowdown. According to the Society of Indian Automobile Manufactuers (SIAM), the cumulative sales of commercial vehicles declined by 9.35 percent, during April to November 2008, compared to the same period last year.

While medium and heavy truck sales dropped by 16.88 percent, light commercial vehicles also declined by 0.26 percent. In November 2008, commercial vehicles sales fell by a massive 49.51 percent compared to 2007, while medium and heavy truck sales collapsed with a decline of 63 percent and LCV sales fell by over 33 percent. Even medium and heavy bus sales fell by 32 percent and smaller buses fell by 26 percent. In fact bus sales have declined for every single month since April 2008 with an exception in June. Most manufacturers including Tata Motors, Ashok Leyland and Eicher have already cut production during November and plan to do so in December 2008 as well so as to align production levels with the lower sales in recent months and prevent a large inventory buildup at their factories and dealerships.

Recession at work

Vehicle production during April to November 2008 saw a growth of 6.56 percent over April – November 2007. However, in November 2008, overall production fell by 6.11 percent over the same month last year as companies cut back in order to avoid inventory piling up.

The auto industry is registering negative growth in consecutive months this year and according to SIAM the extent of contraction is much greater than the rate of decline in 2000-01 when the industry last went through a recession.

Meanwhile, three-wheeler sales declined by 3.37 percent in April to November 2008, with passenger carriers growing by 16.63 percent; goods carriers declined by 36.90 percent. In November, three-wheeler sales fell a substantial 23.12 percent.

The huge Indian two-wheeler segment, which is the second largest in the world, grew just 3.76 percent during April-November 2008.

According to estimates, around 40 percent of the motorcycles bought in the country are financed. SIAM data reveals that mopeds, motorcycles and scooters grew by 4.57 percent, 2.89 percent and 7.48 percent respectively. Interestingly, the emerging electric two-wheeler segment grew by 43.47 percent with an increasing number of buyers switching to these new-generation two-wheelers that promise lower running costs.

However, overall two-wheeler sales declined 14.68 percent in November 2008 compared to November 2007. Exports provided the silver lining among all the bad news with a growth of 33 percent during April to November 2008, with all segments except commercial vehicles registering positive growth. Passenger vehicles and two-wheeler exports grew 66.39 percent and 30.98 percent respectively while three-wheeler exports grew 11.69 percent. However, commercial vehicle exports declined 6.77 percent in this period.

Amid this gloomy scenario, the New Honda City which debuted in November managed to report strong numbers. In fact its sales were 77 percent higher compared to the same period last year, with buyers being drawn to its stylish looks, powerful engine and of course that Honda badge.

Another model that has bucked the negative trend is the Maruti Dzire saloon which has become a runaway success for Maruti Suzuki. So popular in fact that, buyers are willing to wait as much as six months to get their hands on the diesel version. Its sibling, the 800 meanwhile continues to see its popularity and sales drop to new lows with just over 2,300 units being sold in November 2008.

Glimmer of hope

In these tough times, the recent reduction in excise duty by four percent by the government as part of its economic stimulus package and the subsequent reduction in prices by most automakers has given the industry a glimmer of hope for the future.

Passenger car manufacturers are pushing hard by offering higher discounts, extended warranties and free servicing and maintenance deals. All this in a bid to encourage buyers to buy vehicles now rather than later.

However, things are likely to get worse before they get better. Most analysts expect that sales would continue to remain subdued for the next few months. From March or April 2009 vehicle sales are expected to grow as the effect of the recent governmental actions to boost liquidity and lower interest rates actually take effect.

The other major factor expected to drive sales next year is the launch of several new models across various segments. These range from the much-awaited Tata Nano at the entry level to the Fiat Linea and Grande Punto, as well as the Mahindra Xylo multi-purpose vehicle to name a few.