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India Carmakers Brace for a Second Annual Sales Slump on Economy

September 05, 2013

General Motors Showroom

A laborer cleans a window inside a General Motors Co. (GM) Chevrolet automobile showroom in Kolkata. Photographer: Brent Lewin/Bloomberg

Maruti Suzuki India Ltd. (MSIL), General Motors Co. (GM:US) and other automakers in India are bracing for a second consecutive annual sales decline as slower economic growth and rising fuel prices keep consumers from car showrooms.

Maruti, India’s biggest carmaker, doesn’t expect demand to pick up because of the economic slowdown, Chairman R.C. Bhargava said in an interview on Sept. 3. General Motors expects sales growth won’t pick up till after a new government is in place post elections next year, P. Balendran, vice president for corporate affairs at GM’s India unit, said Sept 4.

Deliveries in India fell for a ninth straight month in July as growth in Asia’s third-largest economy is forecast by BNP Paribas SA to slow to 3.7 percent in the year ending March. Carmakers from Hyundai Motor Co. (005380) to Toyota Motor Corp. (7203) are targeting to export more cars from India to counter weak demand and benefit from the rupee’s plunge against the U.S. dollar.

“While agriculture will be good this year, jobs growth for the bulk of the population can only come in from manufacturing and services, where there is a slowdown,” Bhargava said in New Delhi, where Maruti is based. “While there may be a slight increase in demand in the festive season from rural areas because of a good harvest, we don’t see things improving overall for the auto industry.”

Rural sales contributed 28 percent of Maruti’s sales in the year ended March, according to the company’s annual report.

Rural Sales

The July-September rainy season, the main source of irrigation for India’s 235 million farmers, had its best start since 1994, according to the weather office. While a good monsoon is helping farm output, other risks mean GDP expansion may dip in the year ending March 2014, BNP said.

In the 12 months ended March, India’s economy grew 5 percent, the slowest pace since 2003. Car deliveries in the same period fell 6.7 percent to 1.89 million units, the biggest decline since 2001, according to the Society of Indian Automobile Manufacturers.

Demand has also slowed as inflation accelerated and fuel prices increased. State-controlled Indian Oil Corp. has raised gasoline prices six times since June. Rates in New Delhi have increased 17 percent to 74.10 rupees a liter in the period. The wholesale-price index rose 5.79 percent in July from a year earlier, a five-month high.

LMC Automotive has lowered its 2013 sales estimate to 3 million units, from 3.56 million vehicles it had forecast at the start of the year and is considering a further cut in its outlook because of the deterioration in India’s financial markets, Ammar Master, a Bangkok-based analyst at the research company, wrote in a report dated Aug. 30.

‘Continued Slide’

“In this time of economic gloom, higher costs of financing, and depleting discretionary income, India’s vast middle class are holding back the purchase of vehicles,” Master said. “This is most evident in the continued slide of mini and sub-compact cars.”

Car sales in India declined 9.7 percent in the first four months of the year that started April 1, according to the Society of Indian Automobile Manufacturers.

Some carmakers expect demand to come during the festival season, which starts with homage to Ganesh, the elephant-headed Hindu god of fortune, on Sept. 9 and runs through Nov. 3 with Diwali, the festival of lights.

“There may be a marginal improvement in the festive season,” Balendran said in New Delhi. “A significant improvement will only take place after the new government comes in and settles down.”

Exports Target

The weak local demand and the rupee’s depreciation is prompting automakers including Hyundai, Toyota and Honda Motor Co. to target increased exports. The Indian currency has declined 17 percent against the dollar this year.

Honda has set a goal to export 6,000 vehicles this year, from 2,500 units last year, Jnaneswar Sen, senior vice president at the company’s local unit, said in an interview in New Delhi on Sept. 4. The automaker also plans to export components from India worth about 6 billion rupees ($91 million), he said.

“A weak rupee will help boost exports,” said Sen.

Hyundai India Chief Executive Officer Bo Shin Seo is also looking to increase exports from the country to take advantage of the fall in the currency’s value.

Toyota exported the first batch of its Etios sedan from India to Indonesia to gauge the market’s potential, Sandeep Singh, deputy manging director of the India unit, said Sept. 4.

“We are exporting cars to other right-hand drive markets,” said Singh.

To contact the reporter on this story: Siddharth Philip in Mumbai at sphilip3@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net


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