Indian Passenger Car Sales Rise 2.7% Y/Y During May, Slowest in Seven Months

Indian passenger car sales increased 2.7% year-on-year (y/y) in May, the seventh straight month of growth. However, this growth rate was the lowest in the last seven months. "This is the slowest growth since October last year when car sales witnessed a decline of 23.8% [y/y]… The overall sentiment in the market is negative," said Vishnu Mathur, director-general of the Society of Indian Automobile Manufacturers (SIAM). Sales had grown by 3.4% y/y in April, 19.7% y/y in March, 13.1% y/y in February, 7.2% y/y in January, 8.5% y/y in December 2011, and 7% y/y in November 2011. Overall light-vehicle sales—including passenger cars, utility vehicles (UVs), light commercial vehicles (LCVs), and multi-purpose vehicles (MPVs)—grew 9.8% y/y to 260,933 units during May, compared with 237,621 units in May 2011. Sales of passenger vehicles (including MPVs and passenger-carrying UVs) improved by 7.5% y/y to 221,135 units, versus 205,638 units in May last year. A total of 163,229 passenger cars were sold last month, compared with 158,809 units in the same period a year earlier. Sales of UVs grew 54.8% y/y to 40,635 units, while MPV sales declined 16.1% y/y to 17,271 units. According to data published by the SIAM, total industry sales including heavy commercial vehicles (HCVs) increased by 7.8% y/y to 283,160 units last month. On a year-to-date (YTD) basis, passenger car sales are up 9.7% y/y at 968,861 units, while UV sales have increased 35.6% y/y to 190,170 units and MPV sales have grown 7.5% y/y to 103,210 units. This leaves the total passenger vehicle segment up 12.7% y/y at 1,262,241 units. YTD sales of commercial vehicles (CVs) stand at 355,447 units (up 12.6% y/y)—comprising medium and heavy commercial vehicle (MHCV) sales of 146,239 units (down marginally by 0.3% y/y) and LCV sales of 209,208 units (up 23.7% y/y). Total industry YTD sales have reached 1,617,688 units, up 12.7% y/y.

Key automakers in India reported mixed sales of passenger vehicles for May as the slowdown had started to affect sales of diesel cars as well. Maruti Suzuki's sales were down 4.3% y/y to 89,478 units, versus 93,519 units in the same period last year, equating to a market share of 40.5% in the passenger vehicle segment, down five percentage points y/y. Hyundai and Tata occupied the next two places in the passenger vehicle segment, selling 32,010 units (up 2.8% y/y) and 25,623 units (up 12.7% y/y), respectively, during May. Hyundai and Tata achieved market share of 14.5% and 11.6%, respectively, during the month. The combined market share of the top three automakers stood at 66.5% last month, compared with 71.7% in May last year. Their performances continued to be affected by strong new competition in the volume small-car segment from global automakers such as Ford, Volkswagen (VW), and Toyota. Mahindra and Mahindra (M&M) saw its sales increase 30.6% y/y to 23,478 units last month, while Toyota's sales rose considerably from 7,470 units to 15,501 units. Honda sales also grew significantly from 2,334 units to 10,334 units, and Skoda sold 2,831 units, up 2.5% y/y. VW reported a sales decline of 26.2% y/y to 4,562 units, and General Motors (GM) sales were down 26.9% y/y to 6,057 units. Ford's sales stood at 6,036 units, down 14.3% y/y.

The CV segment posted single-digit percentage y/y growth in May, with total sales up 9.1% y/y to 62,025 units. LCV sales surged by 24.4% y/y to 39,798 units, while the MHCV segment posted an 10.6% y/y decline to 22,227 units. In the CV segment, Tata's sales increased 1.3% y/y to 34,505 units, giving it a 55.6% market share versus 59.9% in the same month last year. Ashok Leyland's sales increased 51.8% y/y to 7,717 units, giving it a market share of 12.4%, compared with 8.9%, while M&M's sales were up by 25.7% y/y to 10,930 units, giving it a market share of 17.6% versus 15.3%.

Production and Exports Continue to Grow

Total domestic vehicle production increased by 11% y/y in May to 351,412 units, from 317,852 units during the same month of 2011, mainly thanks to the passenger vehicle segment, in which output grew 13% y/y to 283,302 units. CV output was up by just 2% y/y/ to 68,110 units. Production of MHCVs declined 15% y/y to 24,637 units, while LCV output rose 16% y/y to 43,473 units. The YTD production figure for passenger vehicles is 1,503,295 units, up 10.2% y/y, while for CVs it is 384,007 units, up 5.9% y/y.

Vehicle exports increased by 26% y/y to 53,894 units last month, versus 42,849 units in May last year, mainly on the back of robust overseas sales by Hyundai, Nissan and Toyota Kirloskar in non-European countries. "On account of slackness in the domestic market in May, we [Hyundai] took the opportunity to ramp up the back orders for the export market. We had higher sales of the Eon in Algeria, the i20 in South Africa and the i10 in South America, particularly in Mexico and Columbia," said a Hyundai spokesperson. In the PV segment, exports were up by 34% y/y to 46,033 units, while they were down 9% y/y to 7,861 units in the CV segment. YTD exports of passenger vehicles are up by 6.2% y/y to 217,573 units, while in the CV segment they are up 11.7% y/y at 39,366 units.

Outlook and Implications

The passenger car sales which have come down drastically from the huge figures last year is now still showing some positive growth but only in marginal numbers; all thanks to weak consumer sentiments, sustained high interest rate and rising fuel costs. State-run oil marketing companies in India announced the steepest ever increase in gasoline (petrol) prices of 7.50 rupees (USD0.13) per litre late last month, citing the rupee's depreciation as the key reason behind the decision. However, the gasoline price was eased by INR2 per litre in early June and diesel prices, still regulated by the government, were left untouched, further widening the price gap between the two fuels (see India: 24 May 2012: Gap Between Gasoline and Diesel Prices Widens in India, Demand for Diesel Models Set to Increase Further).

In response, carmakers were considering boosting their diesel model capacities, but the anticipation of additional tax on diesel vehicles have put breaks on their expansion plans. The Indian finance ministry has hinted at a 4–6% increase in excise duty on the purchase of diesel cars in a bid to discourage the consumption of subsidised fuel by personal vehicle owners. The final decision may be taken before the monsoon session of Parliament, which begins in July. The automakers are lobbying against the tax increase, fearing it will hurt a fast-growing segment of the automotive industry. The finance ministry has asked the industry to submit data on sales and production of diesel and gasoline cars. Automakers including Maruti Suzuki, Ford, Mahindra and Mahindra (M&M) and Hyundai fear that the government's plan to levy an additional tax on diesel vehicles will impact their investments into diesel facilities in the country (see India: 11 June 2012: Indian Automakers Fear Additional Tax on Diesel Vehicles Will Affect Investments).

Going forward, SIAM foresees India's passenger car sales growing by 10–12% y/y in FY 2012/13, while sales of trucks and buses are expected to increase by 9–11% y/y. IHS Automotive expects total Indian light-vehicle sales to reach 3.2 million units in calendar year 2012, up from 2.9 million units last year.

M&M's XUV5OO, its most popular sport utility vehicle (SUV), has had an impressive 7,200 bookings in just two days after national bookings were opened, taking the overall sales tally of the model up to over 25,000 units. The automaker had already sold about 18,000 units since its launch in September last year, through a phased roll out. In order to meet the strong demand, M&M plans to increase monthly output of the XUV500 to 5,000 units by around September–October this year. The company ramped up capacity to 4,000 units a month in May, and has plans to start exporting the model to new markets of Australia, Chile and Western Europe during this fiscal year ending 31 March 2013 (see India: 11 June 2012: M&M to Increase XUV500 Monthly Output to 5,000 Units by September).

Furthermore, Maruti is keen to reduce its dependence on road transport as output is set to rise to three million units a year in the next three to four years as sending vehicles by rail halves transit time, besides saving on costs and wear and tear. The automaker is pushing Indian Railways to establish an alternative. Maruti at present transports 5% of its production by rail from Gurgaon railway station in Haryana, and plans to transit one-third. The plan is currently stuck as the Haryana State Industrial and Infrastructure Development Corp. Ltd (HSIIDC) has not been able to acquire the land needed to lay dedicated tracks from Patli station in Manesar to the company's plant 18 km away. Besides land acquisition issues, there is also a debate on whether the project should be dedicated exclusively to Maruti or to other companies as well. Additionally, Maruti is trying to establish an auto hub at Bijwasan near Gurgaon and is trying to persuade Indian Railways to move ahead with a proposal to set up a terminal there aimed at enabling the smoother transit of vehicles from various plants in the Gurgaon–Manesar industrial belt to the rest of the country. Indian Railways formulated the auto hub policy in 2010 under which facilities for loading and unloading at an auto hub are to be provided by the railways, while the service area of the hub in and around the terminal will be developed by the licensee. The licensee has to be an automobile or logistics company with an annual turnover of at least INR200 million and will be allowed a maximum of one year to complete construction and make the hub operational.