It was a tough quarter for India's Tata Motors
While Tata's bottom line was hit by rising commodity costs and losses related to shifting currency exchange rates, slowing auto sales in India were the key factor in the decline. Tata's shares fell by more than 2% in Mumbai on Monday, and its U.S.-traded shares were off more than 3% at midday here.
Challenging trends squeezing profits
Tata's troubles aren't life-threatening -- the company is, after all, still solidly profitable -- but those profits were squeezed by several different factors that will affect rivals as well.
Tata, like other automakers around the world, has had to deal with rising global prices of key commodities like steel and rubber. But India's auto market is very price-sensitive, meaning that passing those costs on to consumers -- as automakers have been doing to some extent in developed markets -- is a challenge.
It's especially a challenge when one of your corporate claims to fame is the world's cheapest car, the Tata Nano. But despite its low cost, Nano sales were off 67% in the quarter, one of the most dramatic drops during a first half (April through September) when Tata's overall car and SUV sales in India were down 16%, not counting its Jaguar and Land Rover brands. Tata is doing better with trucks and buses, where sales were up 15% in the half, and with its Jaguar Land Rover division, where profits were up 9% in the quarter on strong sales in China, but clearly Indian consumers are under pressure.
That pressure is increasing -- car sales in India fell 24% in September, the largest monthly drop in more than 10 years. That could be a problem for other automakers -- including the giants that have been looking to India for growth.
Growth is slowing, in India and elsewhere
Indian consumers are being challenged by rising interest rates, higher fuel prices, and a slowing overall rate of economic growth, and that has hit car sales hard across the industry. But growth hasn't gone away entirely for everyone: Ford
Ford, General Motors
But as India's growth has slowed, those ventures' prospects for strong growth have dimmed along with Tata's. Tata trails both Hyundai (OTC: HYMTF.PK) and the Maruti Suzuki joint venture in terms of sales in its home country, but it was expected to see gains as labor troubles have hit market leader Maruti Suzuki hard.
Those gains may still come. And the strength of Tata's luxury offerings, Jaguar and Land Rover, in China should continue to help Tata's bottom line. But clearly Tata's white-hot growth rate is a thing of the past, at least for the moment.
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Fool contributor John Rosevear owns shares of Ford and General Motors, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of General Motors and Ford. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.