India Watch : Sales slump takes toll on India carmakers

James Fontanella-Khan in Mumbai and Amy Kazmin in New Delhi
FT.com, 30th January, 2009

India’s two largest carmakers were hard hit by plunging car sales in the last quarter of 2008, with Tata Motors reporting a Rs2.6bn ($53.2m) loss, its first quarterly loss in seven years, and down from a Rs4.9bn profit a year ago.

The results came a day after Maruti Suzuki, India’s largest passenger-car maker, said profits for the three months ending in December – India’s fiscal third quarter – dropped 54 per cent to $44m, with an 18.2 per cent drop in the number of vehicles sold.

Tata Motors, which last year paid $2.3bn to acquire the Jaguar and Land Rover brands from Ford Motor, said its total Indian sales volumes, including exports from India, for its fiscal third quarter dropped 31 per cent to 98,760 vehicles.

However, Ravi Kant, Tata Motors’ Managing Director, said he saw signs that the market might be recovering. “We had the worst quarter, and I hope not to see this again in my life,” he said in Mumbai. “We have seen improvements and feel we are entering a positive trend and are on an ascendancy curve.”

Both Tata, which has about 60 per cent of the Indian truck and bus market, and Maruti, which specialises in small passenger cars, have blamed their plunging sales volumes on global financial turbulence. This has affected both the availability and cost of car loans and other credit, forcing many Indian consumers and companies to postpone purchases.

“The automotive sector in India suffered severe contraction in demand arising from major financial and other market upheavals,” said C. Ramakrishnan, Tata Motors’ Chief Financial Officer.

The company also said it would cut its capital expenditure by about 10 per cent over the next three years to reflect tougher conditions. While India’s overall economy is still forecast to grow about 6 per cent this year, Subir Gokarn, chief Asia-Pacific economist at Standard & Poor’s, said Indian consumers have grown increasing anxious about their future prospects.

This has affected their willingness to make a large purchase such as a car. “An automobile is the easiest thing to defer,” he said. “Interest rates are high, people’s sense of security about jobs and income has obviously taken a beating, and all of these have a bearing on consumer confidence. In this situation, discretionary spending gets trimmed.”

According to the Society for Indian Automobile Manufacturers, passenger car sales in December fell 13.5 per cent compared with sales in 2007, while sales of scooters and motorbikes fell 15.4 per cent compared with the previous year. Sales of commercial vehicle sales have dropped even more precipitously, falling 15 per cent so far in the fiscal year starting in April, and plunging 58 per cent in December compared with the same period last year.

Tata Motors’ woes in its home market will exacerbate its difficulties as it battles for greater UK government aid to assist its ailing Jaguar and Land Rover unit. Mr Kant described the UK government’s £2.3bn ($3.3bn) auto industry bail-out as helpful for the long run but insufficient to cope with the British industry’s current liquidity crisis.

[Source: FT.com]

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