Boston, MA -- (SBWIRE) -- 01/02/2014 -- According to Gaikindo, domestic vehicle sales for September 2013 came in at 115,921 units, an increase of 13.5% y-o-y. Although we expected the market to take a breather after the recent fuel price hikes, we highlighted that there was no need to get overly bearish as underlying demand still remains strong (see 'Fuel Price Hikes: Initial Thoughts', July 1 2013). True enough, while sales slowed down in the June to August period, September figures have pushed 9M13 sales up 11.2% y-o-y, to 907,996 units.

2013 Sales

In line with our view, the rise in lending costs has seen the commercial vehicle (CV) segment bearing the bigger brunt of the fallout. However, weakness in CV sales has been more pronounced than we expected, especially in the heavy truck and bus segments. Therefore, we have downgraded our 2013 CV sales growth forecast to 0.5%, to 340,000 units, from 4.0% previously.

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On the other hand, anecdotal evidence of automakers' reported sales in September 2013 indicates strong double digit growth in passenger car sales. Therefore, we have upgraded our 2013 passenger car sales growth forecast to 9.8%, to 860,000 units, from 8.5% previously as we expect the segment to have a strong finish to the full year.

These revisions will then marginally revise our 2013 vehicle sales growth forecast downwards to 7.0% from 7.2% previously.

2014 Sales

While vehicle sales in September 2013 posted an all-time high of 115,921 units, we believe it will be difficult for the sector to continue posting record sales in the coming months due to a deteriorating macro-economic backdrop and the persisting drag of higher interest rates. Furthermore, we cannot neglect the fact that three quarters of auto sales are on loans and higher interest rates will eventually cause consumers to feel the pinch as well.

To be sure, our 2014 passenger car sales growth forecast of 8.1% does take into account a slowdown in car sales and we are happy to maintain that for now.

However, we are slashing our 2014 CV sales growth forecast as we believe the segment will continue to face headwinds from higher interest rates. Besides the rise in loan servicing costs for CV buyers, a large part of CV demand comes from interest rate sensitive sectors such as construction and infrastructure, which too will experience a slowdown. Indeed, our Infrastructure team recently downgraded its 2014 growth forecast for the construction sector from 6.9% to 6.3% (see 'Bearish Near-Term Construction Outlook In Full-Flight, October 24). Against this challenging backdrop, we have downgraded our 2014 CV sales growth forecast to 3.1%, to 350,000 units, from 7.5% previously.

This will revise our 2014 vehicle sales growth forecast from 7.9% to 6.7%.

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