Indian Passenger Car Market Grows Strongly in August, Overall Vehicle Sales Up 33% Y/Y

Sales Surge

The Indian vehicle market witnessed another month of strong volume growth during August, according to data published by the Society of Indian Automobile Manufacturers (SIAM). The figures reflect the strength of the Indian economy, although the pace of growth has now stabilised following the elimination of base effects. Nevertheless, total industry sales grew by 33% year-on-year (y/y) to 256,257 units last month, up from 192,734 units in August 2009, despite the elimination of base effects in the commercial vehicle (CV) segment. Light-vehicle sales, including passenger cars and utility vehicles (UVs), rose by 32% y/y to 231,297 units in August and are up 33.53% y/y at 1.76 million units in the year to date (YTD). Meanwhile, passenger car sales increased 34.3% y/y to 160,794 units in the month and stand at 1.2 million units in the YTD, up 32.1% y/y. Maruti Suzuki remained the largest-selling automaker in the month with sales of 92,674 units, an increase of 32.5% y/y. Tata and Hyundai occupied the next two spots, selling 30,312 units (up 39.9% y/y) and 28,601 units (up 17.2% y/y), respectively.

UV sales also continued their upward trend in August, owing to increased demand for sport utility vehicles (SUVs), helped by growing affluence levels in the country. UV sales rose 17.5% y/y to 24,293 units during August. Sales in the segment are up 24.3% y/y at 205,221 units in the YTD, helped by a lower base of comparison as sales were down 6.5% y/y during the same period in 2009. Multi-purpose vehicle (MPV) sales also rose in the month, by 78% y/y to 19,140 units, resulting in a YTD increase of 52.7% y/y to 128,278 units.

The CV segment, which has enjoyed a strong recovery so far this year, sustained its growth momentum during August. Sales in this category grew by 28% y/y to 52,030 units in the month. This has taken YTD sales to 432,221 units, up 59.4% y/y, thanks to a lower base of comparison as there was a decline of 17.6% y/y during the same period last year. Light commercial vehicle (LCV) sales are the main support for the CV segment and they continued to surge in August, rising by 16% y/y to 27,070 units. Sales in the LCV segment are up 41.2% y/y at 222,799 units in the YTD. Meanwhile, medium and heavy commercial vehicle (MHCV) sales also maintained their strong growth momentum in August, although this was partly down to base effects. MHCV sales surged by 40% y/y to 24,960 units in the month. Sales in the segment are up 84.3% y/y to 209,118 units in the YTD after sales fell 38% y/y in the same period last year.

Production and Exports Also Strong

Domestic vehicle production meanwhile continued to improve in August, backed by stronger demand for vehicles both locally and abroad, although it stabilised somewhat compared with previous months. In the month, overall vehicle output grew 33% y/y to 305,042 units. Production of passenger cars increased 32% y/y in August to 246,000 units, while on a YTD basis, production volumes in the segment increased 33% y/y to 1.82 million units in the period. CV output rose by a further 35% y/y to 59,042 units in the month and is up 69.2% y/y to 472,925 units in the YTD. YTD sales in the CV segment were down 24.2% during the same period last year, which has helped the percentage rate of growth so far this year. CV output also improved thanks to the increase in availability of credit and strong economic growth so far this year.

Vehicle exports have been at an all-time high recently thanks to strong demand for models such as the Maruti Suzuki A-Star (known as the Alto in some markets) and the Hyundai i10 and i20 in European markets. However, export demand has stabilised so far this year compared with last, and this is reflected in the marginal decline in total exports of 1% y/y to 44,484 units during the month. This was largely due to a 7% y/y decline in export volumes of passenger car models in the month to 38,279 units. However, CV exports continued to register significant growth in the month, at 80% y/y to 6,205 units. Meanwhile, on a YTD basis, passenger car exports have increased 16.8% y/y to 296,996 units in the period, compared with a rise of 33.1% y/y during the same period last year. CV exports are up 99.2% y/y to 40,363 units in the YTD, helped by a lower base of comparison as CV exports were down 48.6% y/y in the same period of 2009.

Outlook and Implications

Despite a substantial increase in overall pricing due to the partial withdrawal of stimulus measures and rising raw material costs in the country, sales volumes maintained their strong growth momentum in August. In addition, the implementation of new emissions norms across 13 major cities in India has had the dual effect of offering new engine options and increasing prices, but this has not dampened demand. This is attributable to strong economic expansion, positive consumer sentiment, favourable interest rates, and an increase in disposable income. Furthermore, a slew of new model launches in the volume small-car segment during February and March, backed by aggressive pricing strategies and favourable interest rates, has meant that these price increases have had little material impact on the market. Indian GDP grew 7.6% in fiscal year (FY) 2009/10 and expanded 8.8% in the first quarter of FY 2010/11. Growth is expected to stabilise at around 8.1% in FY 2010/11, according to IHS Automotive estimates, compared with the Reserve Bank of India's (RBI) forecast of 8.5%. The RBI announced a further increase in its key policy repo rate (by 25 basis points) and its reverse repo rate (by 50 basis points), to 5.75% and 4.5%, respectively, during its first-quarter review of monetary policy in July, and it is signalling further tightening in the months ahead. Wholesale price inflation has spiralled upwards dramatically in recent months, mostly because of supply-related factors, and it currently hovers near 10%. Prior to 2008, the decline in inflation in recent years had been achieved through supply-side liberalisation, including deregulation and reduction of tariffs and subsidies. Consumer price index (CPI) inflation is expected to average 11.3% in 2010 and 6.7% in 2011, higher than the trend seen in recent years because of supply-side factors and robust domestic economic activity.

Meanwhile, vehicle exports from India declined in August compared with previous months because of a sharp decline in demand for small cars in overseas markets. Exports accounted for 17.4% of Indian automakers' total vehicle sales in August. Maruti Suzuki saw its exports decline by 18.4% y/y to 12,117 units. Meanwhile, Hyundai India's export volumes fell 12.3% y/y to 22,035 units. Exports from India have stabilised in recent months and automakers are increasingly exploring new overseas markets to sustain sales. Exports are expected to grow in future with the addition of Nissan's new Chennai plant and the plans by Ford India to export its small-car models to South Africa, and the long-term view of India as a cost-effective small-car production location looks set to continue.