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Tough Credit Conditions Hitting Indian Auto Sector badly
Feb 03, 2009

Vehicle sales in India dipped down to its lowest level in December 2008 due to tight credit market, weak job market and negligible increase in income.

The Society of Indian Automobile Manufacturers (SIAM) said that the total domestic sales of the Vehicle sales in India slumped 18.2% in December 2008, following the heavy decline in the sales of two-wheelers and commercial vehicles, marking yet another worst sales record for the already struggling industry, as reported by Business Standard.

In December 2008, 5,97,622 Units of vehicles were sold in domestic market as compared to 7,30,603 Units sold in December 2007. During the same period, sales of commercial vehicles reached 17,920 Units by sliding 58.28% from 42,961 Units in December 2007. Passenger car sales also declined by 6.9% to 82,105 Units in December 2008 from 88,272 Units in December 2007, but the overall performance of the segment was better than expected.

The major factor that triggered this decline in the auto sector is the continued tightening of bank loans. In December 2008, auto loans remained expensive despite introduction of major cut by the central bank in its major short-term lending rate that  stands at 5.5%, lowest in 8-½ years.

Furthermore, economic downturn has also played its part in setting the background for declining auto sales. This fall in auto sales can also be attributed to the lack of job opportunities and soft rise in income. Additionally, as a vehicle registered in the New Year has a better resale value, consumers preferred to postpone their purchase decision till January. Thus, vehicle sales for December remained low.

However, it is too early to make any predictions, but this worst phase for the auto industry is expected to extend to the next fiscal also. If similar conditions prevail in coming times, then sales of cars and two-wheelers can decline by around 0-3%. Sales of commercial vehicles are anticipated to come down by 15-25% in the current fiscal.

According to a Research Analyst at RNCOS, “Indian automobile industry is in a pathetic condition and this condition is expected to continue in near future also. As tight credit market has blocking the industry growth, convenient and reasonable credit alternatives will help the auto sales to recover.”

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