* Car sales to fall in FY13 for first time in a decade
* Industry set to stay gloomy next year -execs
* Global carmakers have made big bets on Indian growth
* Capacity glut sees utilisation levels plummet
By Henry Foy
MUMBAI, April 10 India's annual car sales fell
for the first time in a decade in the just-ended financial year,
official data will show on Wednesday, calling into question
bullish growth expectations that fuelled billion-dollar bets
from global manufacturers.
Carmakers in India, two years ago the world's hottest growth
market after China, have seen high interest rates, rising fuel
prices and prolonged economic gloom turn an industry recently
growing at 30 percent a year into one plagued by huge discounts,
showrooms full of unsold cars, and chronic overcapacity.
Quitting India is not an option for global majors such as
Ford Motor Co and Volkswagen AG, given its
huge population, rising incomes and long-term potential. But
manufacturers that have sunk billions into the country are
likely to pare back expansion plans as economic troubles persist
"The industry, like the rest of the economy, has slowed down
very substantially," R.C. Bhargava, chairman of market leader
Maruti Suzuki, told Reuters.
While surging sales of SUVs have been a bright spot for some
manufacturers, sales of the smaller cars that account for most
of the passenger vehicle market have crashed this year.
"Everything has slowed down by two to three years," Bhargava
said. "Everybody has to consolidate their operations, look how
to manage with less, do more with less ... This recessionary
period will force people to be more efficient."
Car sales in the first 11 months of the financial year that
ended March 31 were down an annual 4.6 percent, and in March
sales fell for almost all carmakers in India. The official data
for March and for the full year will be released by the Society
of Indian Automobile Manufacturers (SIAM) on Wednesday.
Last year, car sales grew 2.2 percent in India.
The immediate future looks mostly gloomy for an industry
that experts had expected to ring up annual car sales of 9
million by 2020 from less than 2 million this year, but looks
set to significantly undershoot that target.
"I don't think those goals are going to happen in that
timeframe," said Bhargava. "Conditions have changed a lot"
Sales will continue to remain weak in 2013, executives said,
with a rebound only likely after a substantial cut in interest
rates and sustained improvement in the country's economic
growth, which in the last financial year fell to its lowest in a
"In the absence of any positive stimulus and sentiments ...
We foresee the pressure on volumes to continue until there is
significant improvement in macro-economic factors," said Rakesh
Srivastava, senior vice president of Hyundai Motor Co's
Indian unit, which like Maruti specialises in small
Hyundai, India's No. 2 carmaker, has weathered the storm
better than others, registering flat growth. Global rivals such
as General Motors Co, Ford, Toyota Motor Corp
and Volkswagen have seen already underwhelming sales volumes
fall by as much as 20 percent.
In 2011, when sales were rising 30 percent a year, Ford and
Maruti wrote cheques for around $1 billion each to build plants
in the western state of Gujarat.
Last month, Tata Motors Ltd's factory in Gujarat,
built solely to manufacture its much-vaunted low-cost Nano,
cranked out just 1,282 cars, a miserly 6 percent of total
possible capacity at the 250,000 cars a year plant.
Tata has been India's worst-performing major carmaker this
year, with car sales plunging almost 30 percent, but its
capacity utilisation woes are mirrored across the industry,
where a race to ramp up in recent years has created a glut.
India's total passenger vehicle production capacity stands
at around 4.9 million, meaning the average industry utilisation
level stands at just under 55 percent. Total capacity is slated
to hit 5.5 million by the end of 2015.
"I suspect everybody will re-evaluate the time when they
need new capacity," said Bhargava, adding that his company,
controlled by Japan's Suzuki Motor Corp, would likely
open its new plant in Gujarat in late 2015, later than planned.
The only bright spot has been a surge in demand for sport
utility vehicles (SUVs). Sales of off-road and crossover models
grew by over 50 percent over the past 12 months, providing
incremental growth for some manufacturers.
Mahindra and Mahindra Ltd, a domestic SUV
specialist, grew its passenger vehicle sales by 27 percent in
the last fiscal year, while Renault SA sold almost
40,000 of its budget SUV Dusters, which it launched in July.
Sales of SUVs and vans are not counted as part of the
passenger car figures released by SIAM. Including both cars and
SUVs, overall passenger vehicles sales rose an annual 4.1
percent between April and February.
Even SUV sales, helped by cheap diesel, are starting to show
signs of slowing growth as the government moves to reduce its
subsidy on the fuel, while a recent rise in tax on the vehicles
may curb demand.
"Any meaningful growth recovery will likely happen only in
FY15E," Macquarie wrote in a recent research report, referring
to the financial year that ends in March 2015.