The Indian vehicle market expanded by 23.7% to 1,847,580 units in the financial year ending in March 2007, according to data released by the Society of Automobile Manufacturer s (SIAM). The country’s economy expanded by more than 9% during this period – way above historical averages and fuelled by uncharacteristically low interest rates and strong growth in manufacturing and service sectors. But a series of interest rate hikes over the last year are beginning to have an affect on vehicle sales.
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All segments of the market were buoyant in the last financial year, with commercial vehicle enjoying particularly strong sales growth. This reflects the underlying strength of the economy and the country’s expanding domestic and international trade. The road transportation segment is still dominated by small operators and owner-drivers and these have benefited in particular from benign interest rates in previous years and significant improvements in road infrastructure.
Overall, commercial vehicle sales rose by a third last year to 476,882 units, compared with 351,041 units in the previous financial year. Medium and heavy commercial vehicle sales rose by almost 32.8% to 275,600 units and light commercial vehicles by almost 34%.
Passenger vehicles, encompassing passenger cars, utility vehicles and MPVs, saw sales rise by 20.8% to 1,379,698 units in 2006/07, with passenger car sales rising by 22% to 1,076,408 units compared with 882,208 in 2005/06.
More than half of the light passenger vehicle market is comprised of mini-vehicles, of which Maruti Udyog – Suzuki Motor’s joint venture, accounted for 75% – or some 427,000 units in 2006. In total, the company sold 635,629 light vehicles domestically in the last financial year and a further 39,295 units were exported.
Tata Motors sold a record 526,066 vehicles domestically in 2006/07, compared with 403,806 units in the previous year. The company has benefited most from the strong growth in the commercial vehicle market, where it dominates, and has successfully penetrated the passenger car and small truck segments. The launch of the Ace small truck in particular has had a substantial impact on volumes. Tata also exported an additional 53,312 vehicles during the year.
While there is still strong positive momentum in the Indian economy, repeated interest rate hikes over the last twelve months, high fuel prices and high inflation are beginning to have an impact on the vehicle market. The Bank of Inflation is increasingly guarded about inflation, which has averaged at between 6-7% in the last year. In the last month alone local lenders have added up to 100 basis points to car finance policies, to around 15-16% APR.
In early 2007 growth in vehicle sales dropped to single digits, and year-on-year comparisons are getting tougher as the year progresses. The vehicle market has more than doubled in size since the 2002/03 financial year – just four years ago. With measures to curb overheating in the economy beginning to take effect, we are unlikely to a return to double-digit growth in the short term.
Tony Pugliese
