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Source: Auto sales run out of gas as interest rates bite hard-India Business-Business-The Times of India


NEW DELHI: It could be the first sign of slowdown in the economy. Car sales fell 1.7% in July, first time in more than two-and-a-half years, with consumers deferring purchase plans due to rising interest rates and inflation. The immediate outlook appears jittery, if analysts are to be believed.
According to Siam, car sales in the domestic market stood at 87,724 units in July against 89,250 units in the same month last year. While Tata Motors, Honda, Ford and Mahindra-Renault saw numbers shrinking, Maruti and Hyundai reported muted growth, revealing the negative sentiments.
"We might see a few more months of weakness, though the long-term fundamentals remain strong," said Sachin Mathur, head of Crisil Research. Mathur said while new models and a shift to cash purchases insulated car sales last fiscal, the negative effect of high interest rates and inflation is becoming evident now and consumers are postponing purchases.
"We expect the car industry to witness single-digit growth this fiscal." Car sales last fell in November 2005. Sales in the four months of this fiscal (April-July 2008) have risen by 9%, led by discounts and double-digit growth in April and May, which is losing steam now.
Analysts said most of the companies managing sales with heavy discounts. "However, sweetening this further might not be possible as rising raw material costs are shaving off profit margins and do not give companies enough room," an analyst with a brokerage firm said.
However, led by Hero Honda, bike sales in July grew 22% at 4.57 lakh units against 3.75 lakh units in July 2007. While Bajaj Auto and TVS had modest gains.

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Do you think this is a short term affect or the start of the slow down?

In my opinion, this is just a short term effect. Crude price has come down and that will have the impact on all other industry. Prices will settle if not come down, and people will be still buying cars. Also we have our NANO release in next month. Its interesting to watch this space since its going to be a cheaper option, better mileage (claimed?).
Since there are so many news of "new launches" i guess some portion of the people are waiting to see when the curtain rises, and then decide.
Just my 2 cents...

Us banks and most financial institutions are in the dump, our IT industry depends on western mostly US financial institutions for a large chunk of their business. There is going to be a short term hit with so many banks on the verge of collapse and cutting down on expenses furiously, and here things could get bad in terms of layoffs and growth.

That's not good for demand. Its already happening so the auto and real estate market are already being hit. Next the malls and retail sector will feel some impact. Demand that is generated outside this demographic will not be impacted much but could be affected by other economic conditions like oil prices.

If you ask me, this looks just like the beginning.
I dont think interest rates or inflation is coming down soon enough, to make this short-lived.

Dont think so, Crude is cheaper, but Indian fuel cost will continue to remain or rise since the Oil companies wants to negate the losses already suffered due to the previous higher crude prices.

I think this time we may have to wait for some time to see the reversal of the slowdown trends.

The fuel prices will not come down for the following reason.

When crude oil touched $145 a barrel, the government increased the prices, but this was not increased to the full extent where the oil marketing companies would not loose (forget making profits). The hike was done to only decrease the losses. So it is time now to reduce those losses.

What goes up has to come down does not apply to the Government lol:

Auto sales will run out of everything if interest rates are as expensive as personal loan rates. Cars in this country are very expensive to own even if interest rates were 0%; now with the current situation they are that much more painful to own for India's large middle class which is getting poorer.

Acording to PC, the interest should come down by next 6 months. If this happens, then we may see some growth on this front. Otherwise, with the inflation and the cost of living also rising, there may not be any scope for growth in auto sector. The middle class may afford the car but maintaining it will be too much for them. We need to wait and watch the next steps the govt takes.

A 3% drop and headlines read "Auto Sales Crash", "Run out of Gas" etc., as if the bottom has fallen out of the auto market?!. What are we?. Reading media reports about the supposedly exorbitant rise in airfares, i checked the airfare on my favorite low cost carrier and the price differential is only 1000 rupees for a destination i traveled to three months ago. What does the media gain by sensationalizing anything that pertains to the so-called "affluent" lifestyle?. Millions of folks need a car or a bike to get to work and earn a living.I saw another thread in this forum about the supposed hike in petrol price by Rs2.50 every month. This is only a recommendation and not policy and in the view of oil prices decreasing , is probably moot. Let us be responsible and report the facts only please!.