India's car industry gets back on the road

Fresh interest rate cuts and persistently low oil prices are set to put India's battered auto industry back on the road to recovery over the next 12 months, as industry figures show car sales growing for the first time in three years.

Data from India's Society of Indian Automobile Manufacturers showed the car market expanded by 5 per cent to 1.9m units over the last fiscal year, in a sign that the worst-ever slump in the country's auto industry is finally over.

However, only a moderate acceleration is expected over the next year, in a market still only barely larger than it was in 2011 following a torrid period of high costs, price wars and retrenchment by leading manufacturers.

"We do expect faster growth, but it is not a sharp recovery or a 'V'-shaped recovery. It will be patchy," said Anil Sharma, head of IHS Automotive in New Delhi, which predicts an increase of around 8 per cent in passenger vehicle sales in 2015.

India's main lenders this week belatedly began cutting the interest rates they offer to consumers, following a series of cuts in base rates from the Reserve Bank of India. Industry figures hope further cuts from the central bank will now curb credit costs more quickly and boost growth.

But even hopes for a tentative recovery may not help global car manufacturers such as Ford, Volkswagen and Toyota, many of which have invested heavily in India only to find their efforts thwarted by wary customers and nimbler local competitors.

In particular, the spoils of India's recovery have thus far been enjoyed only by a handful of small car manufacturers - specifically market leader by sales Maruti Suzuki, South Korea's Hyundai Motor and Honda of Japan - leaving larger and more expensive western manufacturers suffering weak sales growth.

"2015 will be a year of small growth, but 2016 will be much better . . . Until then we have this two-speed phenomenon, where Maruti and Hyundai are gaining market share at the expense of everyone else," Mr Sharma said.

US-based Ford, for instance, last month opened a new $1bn factory in the western industrial state of Gujarat, part of a wave of foreign spending in anticipation of a resumption of the double-digit growth rates seen in India during the middle of the last decade.

Although this investment has dramatically increased the local capabilities of global auto groups, it has worsened problems of overcapacity, forcing many manufacturers to export increasing numbers of India-built models to other emerging markets in Asia and Africa.

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation