Car Sales Lose Steam

The car market is losing pace. Fewer people visit car showrooms now and companies expect sales growth to slip below 10% this fiscal, after two years of high-speed run. Maruti Suzuki, Hyundai Motor, Tata Motors, Honda Siel Cars and Toyota Kirloskar Motors have all confirmed a drop in customer inquiries and a steeper fall in sales over the past two months when cost of ownership has increased on all counts — from sticker price and loan interest rate to tax and fuel prices. India beat China as the fastest-growing car market in 2010-11 with a 30% rise in sales when a slew of new cars and rising incomes lured people into showrooms in hordes. And most carmakers — from Mercedes Benz and BMW to Volkswagen and Toyota to Maruti Suzuki and Tata Motors — have been increasing production, portfolio and market reach to keep up with racing demand. But the mood has become less buoyant. The interest rate on auto loans is now 11-15% after six rounds of rate increases in the past one year. Earlier, interest rates were 8-12%. Bankers say consumer sentiment changes once interest rates touches 15% mark. Another concern is the fear of a sharp increase in fuel prices. Many people expect oil marketers to increase petrol and diesel prices immediately after assembly elections in West Bengal, Tamil Nadu, Assam, Kerala and Puducherry next month due to increasing crude prices. But many others’ inventories are at their highest levels in two years. The industry has about 40-50 days inventory now, compared with the earlier 10-15 days. This means around three lakh cars are in warehouses and dealership networks. But nobody plans to halt their expansion.