India’s auto sales fall for record 6th month

India autos May13.pngAs the above chart shows, India’s auto sales have now fallen for the last 6 months versus the previous year. According to India’s auto association, this has never happened before (sales data was first collected in March 1998). This is another symptom of India’s slowing GDP growth, with the government estimating Q1′s level at just 5% – the lowest in a decade.

The problem is that India remains one of the world’s poorest countries. According to the IMF, GDP/capita was just $1492 in 2012, placing it 140th in the world rankings. And as we warned in chapter 6 of Boom, Gloom and the New Normal, most analysts have wrongly interpreted high levels of income growth to mean India is about to become ‘middle class’:

• India’s per capita incomes have been growing fast, as reforms boosted the economy
• They were up 12% in 2012, after 14% growth in 2011
• But they are still only Rs 57k/year ($1040)

This means cars are currently far too expensive to become a mass-market. Instead people rely on motorbikes and rickshaws. And those who do want to buy cars, need to borrow. This is difficult to afford at current interest rates, even with major incentives on offer from the main manufacturers.

In addition, today’s high gasoline prices, caused by the liquidity created by western central banks, have been another barrier. They are currently Rs53/l ($1/l, $4/gal). Thus the cost of 4 litres, or I US gallon, is the same as an average person’s daily income.

But the world will change. The key issue with India’s car market is currently affordability. And so Nissan’s planned launch of its $3k Datsun range is a potentially game-changing moment. The timing may even prove inspired, as it could easily coincide with a return to historical levels of $30/bbl for oil prices. Potential suppliers need to move quickly if they want to benefit.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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