Compact car sales to grow in FY11; margins to squeeze: Crisil

Strong competition and new launches in India's compact car market this fiscal will lead to a 6-7 per cent dip in the sales of existing models, says a study. Overall volumes growth will continue during 2010-11, but car manufacturers will face cost pressures and a squeeze in margins, the study by ratings and research agency Crisil said. "Although the total sales of compact cars are expected to increase by 11-13 per cent in the financial year 2010-11, sales per model will be 6-7 per cent lower than the previous year due to growing competition and new model launches," it said. It said the decline in sales per model will add to cost pressures for auto makers, who are already reeling under high product development expenditure and a growing need for adding more features like power windows, power steering and electronic devices to retain market share. It said auto makers would be better off increasing sales per model rather than focusing on pushing overall sales. According to Crisil, during the current fiscal, 2010-11, four new models will be launched in the market, which will also see the entry of three more players, intensifying the competition further. "To maintain margins and benefit from scale efficiency, car manufacturers would need to increase sales per model in the compact car segment rather than focus on overall sales by introducing more models," said Crisil Research Head Manoj Mohta. He said that although sales of compact cars have increased 14 per cent each year from 2006-07 to 2009-10, average sales per model have declined 12 per cent. Between March, 2005, and March, 2010, the total number of compact car models increased from 9 to 21 and the number of players in the segment went up to eight from five.