Car Sales in India Surge By 23% in February

Jim Brown
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China is no the only country posting record surges in auto sales. Sales of autos in India jumped +22.6% to 189,008 vehicles in February. Motorcycle sales rose +21% to 776,051 units and sales of commercial vehicles grew by over 10%. Welcome to the 21st century.

I have written several time over the last year on the expectations of OPEC and the IEA for overall oil demand to decline in this decade. They both felt, as late as mid 2010, that demand had peaked thanks to more efficient cars and slowing growth in the OECD nations. I wonder if they still hold that same opinion?

We saw China's car sales spike +32% in 2010 with expectations for continued gains in 2011 despite several programs implemented to make it harder for people to buy cars. Now we are seeing a major boom in India. The Indian market is expected to triple by 2020 to six million cars per year compared to the current two million. India is Asia's third largest market and that market will continue to grow as more Indians move up the economic ladder.

India has become a marketing battleground between Ford, Renault, Nissan, GM and Volkswagen. All have launched new model to compete with Tata Motors and their gas sipping subcompact. Of course India has the same problem as China and it is only going to get worse. That problem is traffic jams. For a less than mobile society the sudden option to buy an affordable auto like the Tata is a leap into the next century. Unfortunately the roads and infrastructure does not leap forward quite as fast as automobile sales.

Indian Traffic Jam

I am sure they will learn how to live with these challenges like other developed countries but in the meantime the transformation could be painful.

China is slowly but surely deflating sales by removing tax incentives, charging higher license fees and limiting the number of licenses that can be sold in certain provinces. This is working fine now but these restriction efforts will eventually fail.

In February China's auto sales fell -33% from January to 1.267 million units. There were contributing factors such as the timing of the Lunar New Year. Through February China has sold 3.15 million cars in 2011. This compares to the annual rate of 18.06 million units as of December 2010. That is up from 13.64 million in 2009. Total auto ownership at the end of 2010 was just over 200 million.

I understand why the IEA and OPEC believe oil demand has peaked in the developed nations but the Asian transportation boom and economic expansion is adding demand at an incredibly robust rate.

Analysts believe China will be producing 25 million cars per year long before 2020. Add in the six million for India and that is a boost to demand by more than 31 million cars per year. Even the gas sippers sold in these countries still consume fuel and we know from historical trends that newly mobile populations tend to drive more, not less, than those who have had cars for a long time. Ask the parent of any teenager in the USA. These Asian populations are just as excited about having a personal auto as any 16-year-old kid in the USA.

Unlike the IEA and OPEC I don't see decreasing demand for the rest of this decade EXCEPT that demand destruction caused by price because of the limited supplies of light sweet crude and the resulting hike in gasoline prices.

That irresistible force of increasing demand in the Asian countries is speeding towards that immovable object that is crude supply. The resulting collision is going to be ugly.

Jim Brown

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