India’s Car Market Defies Predictability

MUMBAI – India’s light-vehicle sales in January increased 9.8% from year-ago to 293,074, according to WardsAuto data. It was the highest monthly total ever recorded by the country’s auto industry.

However, January’s results trail India’s record 29.5% annual growth rate over the previous two years. Market analysts say that at last month’s rate, sales in the April 2011-March 2012 fiscal year may not meet even the thrice-revised projection of 2% annual growth.

Adds Vishnu Mathur, director general-Society of Indian Automobile Manufacturers, “Sales may be heading for a decline for the first time in nine years.”

Even apart from the possibility of a decline, trends have been erratic, with deliveries climbing as high as 18.7 % in some months and falling as much as 15.9% in others.

The range of variation among auto makers is large, as well.

January light-vehicle growth by India’s Big Three – Tata, Hyundai India and Mahindra & Mahindra – was an encouraging 16% on combined sales of 130,630 units, in an otherwise indifferent market atmosphere. But Maruti Suzuki, emerging from its recent production crisis, saw only flat results at 101,047.

Toyota Kirloskar passenger-car deliveries soared 245.7% to 9,659 units on the strength of its subcompact Etios sedan and Etios Liva hatchback. But Honda Siel Cars saw sales plunge 71.9 % to 1,777 amid ongoing shortages of parts from Thailand and Japan.

Both U.S. auto makers lost sales: Ford India was down 7.8% and General Motors India tumbled 21.7% from like-2011.

“We have already created the capacity and are aligning our production suiting the demand,” says P. Balendran, vice president-GM India. “Since we are expecting double-digit growth in the next financial year, we do not expect any fall in our sales next year.”

Nissan India passenger-car deliveries jumped 183.1% to 5,110 units, while Volkswagen Group managed 11.5% growth to 8,759. “Our sales have come down, but we have a positive growth,” says Neeraj Garg, passenger cars director-VW India.

German luxury auto makers Audi, BMW and Mercedes-Benz, which have experienced rapid growth in the past two years,  delivered a combined 2,340 cars and light trucks in January, up 48.3% from like-2011.

Auto makers like to think the slowdown is temporary, as diesels, discounts and new models keep attracting customers.

The high-end vehicle market has great potential: Big farmers who have sold off land, younger CEOs of inherited business and technological professionals with unlimited aspirations and incomes want German luxury sedans and Italian sports cars.

An imported Aston Martin Rapide can find buyers at Rs15 million ($300,600) and a Lamborghini fetches Rs35 million ($693,000).

Meanwhile, middle-class managers’ wealth is growing even as the economy slows down. The rural rich are not concerned about rising interest rates, as they have plenty of cash and do not rely on financing.

Apart from the growth rate, the structure of the market, buyers’ preferences and auto makers’ decisions are changing. Even advertising is changing, with new-car information appearing routinely on social-media sites such as Facebook and Twitter.

Smaller compacts are falling out of favor with buyers, who are demanding entry-level sedans and smaller SUVs with upscale features but in the small-car tax bracket.

Gasoline prices are rising rapidly, while diesel prices are holding steady. But auto makers are unwilling to invest in diesel-engine production just yet. That is because the government has not been able to decide whether to tax diesel fuel, diesel-powered cars, or both, in the federal budget to be presented in March.

“Government does not realize that diesel consumed by cars is an extremely small portion of total diesel consumption,” says Debasis Mitra, sales director-Mercedes-Benz India.

PSA Peugeot Citroen, which announced a Rs40 billion ($800 million) investment next to a Tata facility in Gujarat state a few months ago, is reconsidering the project. The French auto maker says the plans remain in place, but it will proceed slowly and will cut costs by shifting its management office from Mumbai to Ahmedabad.

Honda is opening 36 dealerships in smaller cities.

Auto makers predict, hopefully, that households with annual incomes of Rs1.8 million ($36,000) will exceed 10 million by 2015.

Lured by the rapid growth over the past two years, India’s auto makers have pledged  Rs337.5 billion ($7.5 billion) in additional investment to boost total capacity to 7 million vehicles annually. If current trends continue, however, nearly half that capacity will remain idle.