Auto sales continue to remain on fast-track

Rising raw material prices cause for concern.

Automobile manufacturers have ended the third quarter of this year with substantial increase in vehicle sales over the same period last year. However, rising input costis a cause for concern. Manufacturers have started hiking vehicle prices to compensate for the raw material price increase.

The industry's performance in the third quarter comes on the back of strong second quarter sales. Despite worries in the form of inflation, rising interest rates and input costs, manufacturers are confident of ending the financial year with a strong growth in vehicle sales, much higher than what they had predicted or anticipated at the beginning of the year.

Car market leader Maruti Suzuki, which commands nearly half of the passenger car market, registered a 28 per cent increase in vehicle sales in the October-December 2010 period over the same period in the previous year, while two-wheeler leader Hero Honda Motors posted a 29 per cent growth in vehicle sales.

According to Mr Venu Srinivasan, Chairman and Managing Director, TVS Motor Company, rising input cost is just one aspect, the other issues being inflation and increasing interest rates. The industry is still optimistic and expects 12-15 per cent growth in bikes and cars next year. “Cautious, but not worried at this point in time,” is how he put it.

The significant developments during the quarter included the Hero group announcing that it will be buying its partner Honda's 26 per cent stake in the joint venture and Mahindra & Mahindra signing a definitive agreement to acquire SsangYong of Korea.

Mr Ajay Seth, Chief Financial Officer, Maruti Suzuki India Ltd, said commodity prices went up substantially during the third quarter, which would definitely hit margins.

According to him, steel prices wentup 10-15 per cent, other precious metals 15-20 per cent, and rubber prices were also up substantially. Besides, crude oil price has also moved up. The third quarter of last year was the lowest point as far as the commodity prices were concerned, according to him.

For automobile manufacturers such as Maruti Suzuki, which import components from Japan, the appreciating Yen was another cause for concern. Inflation would also push up prices of consumables and services, while rising interest rates would affect availability of finance.