Auto sales: Losing speed

After a reasonably good first quarter, July has seen very weak demand for cars and CVs.

Unless interest rates come off soon, sales of passenger cars are unlikely to pick up. While the 1.7 per cent fall in volumes of cars in the home market in July is largely driven by poor volumes for the Indica, which were down 27 per cent, several other older models too aren’t seeing very strong demand either. Newer models like the Swift and the I10 appear to be doing brisk business.

The slowdown in volumes has been rather sharp last month —between April and June the growth in volumes for cars was a very decent 12.3 per cent, and that too, on a high base of 13 per cent. Indeed, utility vehicles, which were coasting along at 24 per cent in April-June saw volumes plummet by 5.77 per cent in July with M&M seeing a drop in volumes of 8 per cent.

The commercial vehicles market too doesn’t seem like it’s going to look up in a hurry. On a very low base (-4.38 per cent), medium and heavy vehicles have seen a growth of just 5.45 per cent in April-July.

Even till June, the picture wasn’t so bad but July has been a difficult month with all players posting weak volumes—Eicher’s volumes crashed 48 per cent. The Tata Motors management had said recently that it had not seen a contraction in the demand for CVs though the situation may have worsened since then.

Higher interest rates and diesel prices could hurt the economics of fleet operators resulting in demand remaining muted. Lighter vehicles appear to be selling well; volumes were up a decent 11 per cent on a high base.

Two wheelers may appear to have bucked the trend —-volumes for July were up a stunning 22 per cent, albeit on a very low base. In April -June though, bike makers weren’t exactly cheering because volumes were up just 7. 9 per cent and that too on a very low base.

Hero Honda was the star performer and that’s why the stock, at Rs 827, commands the highest multiple of 14 times estimated FY09 earnings. Other stocks are trading at multiples of between 10 and 12 times.