Auto sales may touch 10 mn in 2006-07

This year is slated to be the hottest for the Indian automobile industry. Between April and September, automobile companies hawked over 4.86 million vehicles, including cars, two-wheelers and commercial vehicles, in the domestic market.

The staggering growth rate of 17.12 per cent for the half year is the highest in the last five years. If this trend continues, industry experts said sales could touch 10 million by March 2007, an annual growth rate of 20 per cent.

For the April-September period in 2005-06, sales of domestic vehicles stood at 4.15 million, up 13.39 per cent over the previous year. Prior to that, sales for the same period in 2004-05 were 3.66 million vehicles, a jump of 14.73 per cent.

"Every year in succession for the last three years has been better for the Indian automobile industry and I see no reason why this should not continue this year as well. We have seen consistent growth for the last five years, before which there was a down cycle," said Sugato Sen, director, Society of Indian Automobile Manufacturers. Sen said they expected to sell 10 million vehicles by the end of 2006-07.

The last time the 20 per cent growth figure was breached was in 2000-2001. Analysts attribute the boom to several reasons, including a general economic boom, excise cuts in the Budget and attractive discounts offered by firms. Also, there has been a spurt in commercial vehicle demand, thanks to a Supreme Court ban on overloading.

"I am not surprised by the performance. We have had two years of moderate growth and last year's was single-digit. Plus, the excise policy has paid off and if infrastructure is available, the dream of India becoming a small-car hub will also come true," said Maruti Managing Director Jagdish Khattar.

"The cut in excise duty for small cars announced in the Union Budget in March 2006 is a key reason that has lent itself to the cause of the automobile industry," said Ramnath Subramaniam, vice-president, research, SSKI.

The increasing mobility requirement of the population and the younger generation preferring personal transport had attributed to massive growth in sales, said Anil Dua, vice-president, sales and marketing, Hero Honda India Ltd.

Of course, discounting and higher tenure of vehicle loans have also helped in pushing demand. Points out Anang Dev Jena, research director, Synovate Motor Research, "Companies are outdoing each other in offering heavy discounts because of competition. So, effective prices have not gone up."

He added that next year would be even better as a slew of new launches were being planned by industry leaders, including Maruti, Hero Honda, Bajaj Auto, Hyundai Motors India Ltd and Tata Motors.

Many argue that the best is yet to come. "This is just the beginning. The best of growth is yet to come in the latter half of the financial year, with the festive season and New Year purchases. Investment in automobiles has rapidly increased and besides the bulging base of compact cars, the mid-size sedans will also be a rapidly growing segment in the next 3-4 years," said Arvind Saxena, vice-president, Hyundai Motors Indian Ltd.

The boom in vehicles sales, a key indicator of growth, is expected to have a positive impact on the country's economy, too.

"The first quarter of the year saw GDP growth of 8.9 per cent and based on the six-monthly figures of the automobile sector, one can infer that the buoyancy in the economy will continue in the second quarter on the same lines as well ," said Subir Gokarn, chief economist, Crisil.

"The automobile sector is pivotal to manufacturing, with its relationship to steel, rubber, ancillaries, services and fuel consumption. It is very rare to see the segment growing in isolation," he added.