Indian Passenger Car Sales Grow at Fastest Rate in Two Years During October

Sales Surge

Total sales in the Indian passenger car market grew at their fastest rate since February 2007 in October, according to data published by the Society of Indian Automobile Manufacturers (SIAM), reflecting the ongoing strength of the economy but also the poor results towards the end of last year. Sales in this segment grew by 33.9% year-on-year (y/y) to 132,615 units during the month, from 99,052 units in the same month last year. This has resulted in an increase of 13.5% y/y in the year to date (YTD) to 1.18 million units. In the month, Maruti Suzuki remained the largest-selling automaker with sales of 63,365 units, an increase of 21.5% y/y. Hyundai and Tata Motors took the next two spots, selling 28,301 units (up 41.5% y/y) and 17,557 units (up 24.5% y/y), respectively.

Utility vehicle (UV) sales also continued their upward trend in October, owing to increased customer demand for sport utility vehicles (SUVs), no doubt helped by growing affluence levels in the country. UV sales rose 26.7% y/y to 22,957 units during October, resulting in a further reduction in the YTD decline to just 1.1% y/y, to 213,535 units. Multi-purpose vehicle (MPV) sales also rose in the month, by 37.1% y/y to 12,471 units, meaning that YTD sales are now up 16.6% y/y to 108,935 units.

The commercial vehicle (CV) segment, which returned to growth in August after a declining trend since late 2008, recorded an even stronger increase in October. Sales increased by 51.9% y/y to 42,562 units, although the YTD market remains in deficit with sales of 359,198 units, a decline of 10% y/y. Light commercial vehicle (LCV) sales have been the main support for the CV segment and they continued to surge in October, rising by 43% y/y to 23,220 units; YTD LCV sales are now up 11.3% y/y at 205,134 units. Meanwhile, medium and heavy commercial vehicle (MHCV) sales have now returned to strong growth, although this is partly down to base effects. MHCV sales surged by 64.1% y/y to 19,342 units, although YTD sales remain down by 28.3% y/y at 154,064 units.

Production and Exports Also Strong

Domestic vehicle production meanwhile continued to improve in October, backed by stronger demand for vehicles both locally and abroad. In October, output grew 22.3% y/y to 239,802 units; YTD production is now up 3.3% y/y at 2.13 million units. Production of passenger cars grew 22.2% y/y in October to 195,203 units, while CV output rose by a further 22.4% y/y to 44,599 units, partly due to the low base of comparison but also owing to the improvement in the CV market. YTD passenger car production is up 9.1% y/y at 1.76 million units, but CV output is still down 17.7% y/y at 371,142 units.

Exports of passenger cars have been at an all-time high recently thanks to strong demand for vehicles such as the Maruti A-Star (known as the Alto in some markets) and Hyundai i10 and i20 in European markets. Total exports in October rose by 15.2% y/y to 42,402 units, with the passenger car segment remaining the major contributor as shipments of this type of vehicle increased 16.7% y/y to 38,567 units. CV exports also recorded a small improvement, increasing by 1.9% y/y to 3,815 units following many months of decline. For the YTD, total vehicle exports are up 18.2% y/y at 359,809 units, with passenger car exports up 29.5% y/y at 331,893 units and CV exports down 46.1% y/y at 27,916 units.

Outlook and Implications

The growth in the market that returned earlier this year continued and accelerated again in October. Several factors were behind this gain, among them the boost offered by the festive season, which for many workers means bonuses, as well as heavy discounts from automakers. The increase can also be attributed to the lower base of comparison as demand for vehicles declined in October last year. Other positive factors have been new product launches and the overall stronger economic conditions, which look set to continue. Finance Minister Pranab Mukherjee has stated that he is currently targeting growth rates in the medium term of between 8% and 10%.

Stronger demand for small passenger cars from overseas has helped India's vehicle exports since the beginning of the year. This has been supported by the scrappage schemes introduced in Europe, where the vast majority of orders have occurred. Maruti Suzuki, which introduced the A-Star/Alto in Europe at the beginning of 2009, saw its passenger car exports more than double in October to 13,766 units from 5,178 units in the corresponding month last year. Hyundai, however, saw its exports of the i10 and i20 drop back in the month by around 12% y/y to 23,435 units, although this could have been a result of the automaker trying to keep up with recent strong local demand. These growth rates may well deteriorate in the coming months as the scrappage incentives are withdrawn, but Hyundai and Maruti Suzuki are already said to be looking at ways of offsetting this by exporting to other markets.