India and China car sales hit by inflation

The Financial Times, June 9, 2011

By Mary Watkins in Mumbai and Patti Waldmeir in Shanghai

New car sales figures from India and China have highlighted the damaging impact of high fuel prices, inflationary pressures and supply bottlenecks on consumer spending in the world’s two largest emerging economies.

The Society of Indian Automobile Manufacturers (SIAM) said that sales of cars in India in May rose 7 per cent to 158,817 compared with 148,425 the year before – the slowest rate of growth in two years.

The deceleration shows how a combination of rising interest rates on car and home loans, as well as the higher cost of fuel and other essential items, is encouraging some Indian consumers to postpone discretionary purchases.

India has raised interest rates nine times in just over a year as it tries to curb inflation. Petrol prices, meanwhile, rose nearly 9 per cent last month.

In China, data released on Thursday showed that May car sales slipped 0.1 per cent year on year, confirming the substantial slowdown evident in the world’s largest auto market since small-car tax incentives were removed at the end of last year. Sales in the first five months rose 6.1 per cent year on year, compared with last year’s full-year growth rate of 32 per cent.

“Given the headwinds present in recent months including rising fuel prices, limits on [vehicle] registrations in megacities, Japan earthquake supply shortages and the elimination of incentives, this is a actually a solid performance and indicates that the market is fundamentally strong,” says Bill Russo, head of Synergistics auto consultancy and former head of Chrysler in China.

Ivo Naumann, China head of AlixPartners, forecast recently that China light vehicle sales would grow 10 to 15 per cent this year despite the current slowdown, as more consumers become wealthy enough to own cars.

SIAM said that, based on the current performance, hitting full-year targets would be difficult. The Indian industry body is forecasting that overall vehicle sales could grow at just 15 per cent in the year to March 2012, compared with 30 per cent last year.

Jatin Chawla, an automotive analyst at IIFL in Mumbai, said he expected to see a slowdown in car sales in India in the next three to four months, adding that a strong pickup in the festive period from September onwards would be critical for carmakers.

Mr Chawla said that Maruti Suzuki could expect to maintain market share as consumers stuck with more conservative carmakers that produced tried and tested models. Maruti – which is currently trying to resolve a strike with workers at its Manesar plant in India who are trying to secure recognition for a new union – recently reported a slowdown in car sales.

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