By on January 12, 2014


For the first time in more than a decade, new car sales in India have failed to post a year-over-year increase. Instead, a sharp drop in sales spells bad news for carmakers with heavy investments in that important developing market.

According to information released by the Society of Indian Automotive Manufacturers and reported by the WSJ, passenger car sales declined by 9.6 percent in 2013 to around 1.8 million units. Total passenger vehicle sales were down 7.2 percent to 2.55 million units. Many factors contributed to the decline, but inflation is the primary culprit. This past year in India saw a slowing of economic growth as prices surged, squeezing the purchasing power of the burgeoning middle class. Besides the spike in new-vehicle prices, the general cost of ownership has also risen. The rollback of government controls on fuel prices has led to higher costs for gasoline. Loan rates have also risen, giving many consumers second thoughts about purchasing a new car. The decline of new car sales illustrates the pitfalls of investing in emerging markets, which demonstrate strong aggregate growth but are often volatile in nature.

Ford, Honda, Hyundai, and Suzuki have all invested heavily in the Indian market in recent years. If growth remains stagnant or declines, it could lead to retrenchment from manufacturers who previously bet big on the emerging economy. Instead of increased domestic sales, manufacturers may turn to exporting. Ford in particular has spent nearly a billion dollars to expand Indian manufacturing capacity in the anticipation of future growth. The introduction of the EcoSport SUV helped lift overall December sales for Ford India, with a 2.84 percent increase over the previous year. But that sales increase came from a nearly 10 percent decline in domestic sales a 22 percent rise in exports. If Ford’s (or any other company’s) plans for Indian domestic growth don’t pan out, it could lead to all kinds of interesting arrangements in an attempt to maximize sunk capital investments. Indian-built EcoSport for the American market, anyone?

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13 Comments on “Indian Car Market Sees First Yearly Sales Decline Since 2002...”

  • avatar

    2013 was interresting year that BRIC countries surprised, i mean China´s growth was much bigger than everoyne expected, while Brazil, Russia and India all were down, who knows how 2014 will look like, in India fuel is more expensive than before, but few interresting things we can see in india.

    After years and yeaers that basically all major automakers are in India now having production plants, Maruti is still by far biggest player and actually in 2013 they didn´t lost market share, on other side, Tata is doing horribly they were years No.3 just behind Maruti, Hyundai but last year Mahindra raced them and this year even Toyota and it´s not like other companies have been doing great job, just they are really going down, maybe in few years they will be hardly top 10 with Honda, Ford, VW, Nissan, Renault all trying to catch up in India.

  • avatar

    The Indian market is still too unstable and has not reached any form of maturity.I would be worried too if I was an investor.

  • avatar

    What are the tax rates on a new vehicle in India? They can be pretty exorbitant in many emerging market countries.

    • 0 avatar

      Fairly expensive for the market. Main problem is the lack of infrastructure and other aspects of a mature market which are very much missing in India.

    • 0 avatar

      They are exorbitant but India has a very good tax policy for developing their domestic car industry by making a certain type of car cheap and thus wanted. That car is in no other market wanted and because it is only wanted in India it is also developed in India.

      ps. Cheap cars can be made locally but expensive cars are full of western technology and mostly made from imported parts so the smart thing to do for a lesser developed country to tax the cr*p out of expensive cars as that lead to less import

    • 0 avatar

      As far as I can tell…on a domestically produced vehicle registered in Marharashtra about 60-90%, with the higher rates for larger vehicles (Renault Duster and the like.) Marharashtra is an expensive state, a cheaper state may be 10-15% less.

      For an imported vehicle, add another 60% import duty.

  • avatar

    In addition to the US, India is another market where VW is not doing very well. Their Indian factory is running at 40% capacity and they apparently have several months of stock at the dealerships. Their switch over to the new 1.2L TSI engines has been very slow, resulting in them having large stocks of their under-powered 1.2L non-TSI powered cars languishing at the dealership lots. Their sister company, Skoda is not doing very well either and poor market positioning between these brands means that they are competing against each other. Both Skoda and VW have positioned them selves as pseudo-premium brands, with same engines, same features and pretty much identical cars. Like the US, VW/Skoda suffer from a very bad terrible customer service reputation.

    • 0 avatar

      I’m curious about the shop and repair infrastructure. I see how US shop mechanics are overwhelmed by anything beyond pushrod. I’m not saying india is a backwater (in IT and medicine they are superb), just wondering how sophisticated their car infrastructure is to deal witht the turbomotors etc.
      India sounds like a country where you want a Toyota or some other vehicle that is popular in all deserts and jungles without infrastructure, not a VW.

      • 0 avatar

        In the main Cities can be done, bit of a problem in the countryside. The best selling car in India has been the old BMC based Morris Oxford “Hindustan Ambassador” any mechanic can work on it and like a 1950’s car is easy to get into.
        More about it.

  • avatar

    The EcoSport would get the same reaction in the U.S. as it did in this article: too cheap and slow to come from a builder of exceptional cars lately.

    Given the low sales and cost of federalization; I don’t see it happening.

  • avatar
    SCE to AUX

    On the other hand, now that the major investment period is over, maybe the market will stabilize and future sales – even if down from previous levels – will begin to pay off the investment.

  • avatar

    In general, most servicing and support is done at car dealerships. Most of VW’s dealers are in the major metro areas. VW/Skoda just have around 4% of the Indian car market. Over 40% remains with Maruti/Suzuki. Their cars are more basic (except for their Fiat sourced DI Turbo diesels). However, they have an extensive support network and are known for their excellent customer service. The Hindustan Ambassador could often be serviced at independent shops as it was quite primitive, but its market presence is quite irrelevant now (<<1%)

  • avatar
    Trail Rated

    “What are the tax rates on a new vehicle in India?”

    Road Taxes vary by state over price slabs and in some states even the type of fuel.
    Ex-Showroom Price: INR 568,937 or USD 9176
    State Road Tax: INR 96,665 USD 1560
    For the basic diesel, it is USD 10982 and USD 1840.

    Ex-showroom = Ex-factory + Excise (12% to 27%) + VAT
    In some cases, a vehicle that costs USD 16,000 can retail for USD 30600.

    “The best selling car in India has been the old BMC based Morris Oxford”

    Sales till the 80s were not out of choice. The Ambassador now sells less than 150 a month.

    “I’m curious about the shop and repair infrastructure.”

    Except some Tata dealers, almost every dealer has top-notch workshop facilities even in small towns. Since independent mechanics don’t have an education or certification and don’t provide any guarantees, nobody trusts them, except maybe some taxi operators trying to cut costs with cheaper spares.

    Skoda and VW has brought this upon themselves by all the dealer horror stories.

    “That car is in no other market wanted and because it is only wanted in India it is also developed in India.”

    If that was the plan, it doesn’t seem to be working.
    Most of the top 10 best sellers were probably designed in Japan with the exception of the Hyundai i10 from Germany and the Bolero and the Swift Dzire from India.

    In 1971, there were 1.8 million registered vehicles on the road. That number went up to 89.6 million by 2006. Parts of India are still stuck in the 70s, I shudder at the thought of the environmental impact when they seek to live and drive like the rest of the world.

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