By Vipin V. Nair
Feb. 6 (Bloomberg) -- After six months of deliberating whether to buy a car, Mumbai real-estate agent Abraham Mathew took out a 300,000 rupee ($6,200) loan to buy a Suzuki Motor Corp. sedan. The clincher: a 20 percent fall in interest rates.
“I can afford to pay my monthly installments more comfortably now,” Mathew, 45, said. He’ll pay 11.75 percent on the loan, down from the 15 percent banks demanded in September.
The easier credit led Suzuki to record sales in India, its biggest market, and may help revive auto demand in the world’s second-fastest growing major economy. That contrasts with plummeting sales in Suzuki’s home market of Japan and in the U.S., where the global recession drove industrywide sales in January to the lowest level since 1981.
“Things are going to be much better as the worst sales we saw in November and December won’t be repeated,” said Jayesh Shroff, who helps manage $1.5 billion in equities at SBI Asset Management Co. in Mumbai. “Reduction in rates will give more confidence to banks as the ability of the borrower to repay is better.”
The Reserve Bank of India has reversed four years of monetary tightening and last month asked banks to reduce rates to improve credit flow frozen after the September collapse of Lehman Brothers Holdings Inc. At least 80 percent of cars sold in India are bought on credit, according to Suzuki.
India’s Growth
India’s economic growth will slow to 7 percent this year, the smallest increase in six years. Exporters have said they may shed as many as 10 million jobs by the end of next month. And by historical standards, rates in India are still high. The State Bank of India, the nation’s largest, charges its best customers 12.25 percent interest compared with 10.25 percent in 2004.
Still, Maruti Suzuki India Ltd., Suzuki’s local unit, sold 71,779 vehicles last month, the highest since it began selling cars 25 years ago. Sales in December were 56,293 and in November 52,711.
Demand in India will help the carmaker be profitable for the current fiscal year in contrast to Mazda Motor Corp. and Fuji Heavy Fuji Heavy Industries Ltd., both of which have forecast losses for this year. The other two carmakers don’t have any production in India.
Suzuki’s shares rose as much as 7 percent to 1,455 yen and traded at 1,417 yen as of 9:37 a.m. in Tokyo
January local passenger vehicle sales at Tata Motors Ltd., the third-largest carmaker in India, were the biggest since May and demand will grow this quarter, said Managing Director Ravi Kant.
At least eight new models and variants have entered India in the past five months to lure buyers.
‘More Confidence’
“More confidence is coming to customers now,” said Rajeev Kapoor, chief executive officer of Fiat SpA’s India venture with Tata. “Car sales should pick up from here, although not very dramatically.”
That’s in contrast to the 37 percent plunge in industrywide deliveries in the U.S., the world’s largest auto market, as the recession ravaged demand. Annualized sales rate is the lowest since June 1982, according to Woodcliff Lake, New Jersey-based Autodata.
In Japan, the world’s second-largest vehicle market, January sales dropped the most in 34 years. The country is headed for its worst postwar recession as factory output slumped an unprecedented 9.6 percent in December and unemployment surged.
Toyota, Honda
Toyota, the world’s largest automaker, and its Japanese rivals including Honda Motor Co., Mitsubishi Motors Corp. have slashed output and reduced workforce as demand weakens worldwide. Sales in China, the world’s second-largest vehicle market, may slow to 5 percent this year, the weakest pace since 1998, according to the China Association of Automobile Manufacturers.
Not all carmakers are optimistic about India. Honda, Japan’s second-largest carmaker, last year postponed opening of a new factory in India citing a slowdown. Hyundai Motor Co., South Korea’s largest automaker, said in December it will cut temporary staff in India and may reduce production this year.
Renault SA, France’s second-biggest carmaker, still has no firm date for the opening of its first assembly line at the plant it’s building with Japanese partner Nissan Motor Co., sales chief Patrick Blain said. Plans for a line devoted to just Renault models remain “frozen.”
Toyota will keep a 30 percent production cut in India until February, Press Trust of India reported Jan. 28, citing the local venture’s Managing Director Hiroshi Nakagawa.
“I don’t think one can deduce the worst is over,” said Arvind Saxena, senior vice president of Hyundai’s India unit. “Finance remains the single biggest factor affecting sales.”
Still Expanding
Some carmakers are still expanding. Volkswagen AG, GM, Ford Motor Co. and other carmakers plan to spend a combined $6 billion by 2012 to raise production in India.
The Indian government is also trying to spur growth with an economic stimulus plan that includes $4 billion of spending to build new roads and ports. The government also reduced fuel prices in January for the second time in less than two months, helping boost auto demand. With banks more willing to loan, buyers like Abraham, are more confident to shop.
“My overall business is not doing well, but the rates have come down, so it helps me,” he said.
His beige-colored Swift DZire arrives next week.
To contact the reporter on this story: Vipin V. Nair in Mumbai at Vnair12@bloomberg.net.
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