India Autos Report Q2 2008

India's autos market has shown the first sign of a stutter in the financial year ending March 2008. Total vehicle sales, including two- and three-wheelers, fell by 4.7% year-on-year (y-o-y), following seven years of consecutive growth. Moreover, this could be more than a blip in the market's performance, as BMI's recently published India Autos Report suggests that a shift in consumer trends could lie behind the downturn, which could therefore be sustained for the duration of our five-year forecast period.

Motorcycle sales, traditionally strong in India, fell by 11.9% y-o-y, to 5,768,341 units, as total two-wheel vehicle sales dropped by 7.92%, to 7,248,600 units. Sales of three-wheelers fell by 9.71%, to 364,703 units.

It is possible that the increasing number of smaller, more affordable cars available in India has started to win over traditional buyers of two- and three-wheelers. This is underlined by growth of 12.17% in the passenger car segment over the financial year. Yet, there is a feeling in the industry that more can be done to boost sales. Dilip Chenoy, director general of the Society of Indian Automobile Manufacturers (SIAM) stated that availability of finance remains an issue and that if 'first time borrowers are taken care of, then it could spell growth for the industry'. Looking ahead, BMI expects four-wheel vehicles to retain momentum over the next five years, although the new financial year is likely to see much lower growth.

India remains attractive to investors, ranking fourth in BMI's new Business Environment Ratings for the Asian auto industry, on 58.6 from a possible 100. India shares the same pros and cons as China, ranking highly in terms of high production and sales growth potential but then with a low score for Country Structure (caused by a large gap between wealthy towns and poorer rural areas) acting as a restriction on future penetration rates. The country's regulatory environment rating is bolstered by the government's efforts to encourage 'green' motoring, as well as a number of free trade agreements, which are supporting the country's bid to become a regional export hub.

Maruti Suzuki continues to dominate the Indian passenger car market, with a market share of almost 54% in the first 11 months of FY2007/08. The company's sales of 572,895 units for the period represented a 16.04% increase on the previous financial year and kept the company well beyond the reach of its nearest competitors. South Korea's Hyundai retained the second place it gained two years ago, with a 17.25% market share, up from 7.5% in FY2005/06, when it first climbed to second. This kept national manufacturer Tata Motors back in third place, with 14.11% from sales of 149,831 units. This represents a 6.95% dip in sales from the previous financial year. The best performance of the period came from General Motors (GM), which more than doubled sales of its Chevrolet brand, mainly due to the launch of two new small cars, the Spark and Aveo U-VA.