June car sales slowest in 2 years, more speed bumps seen

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Demand for auto sales in India is expected to skid more than predicted, an industry body said, as rising interest rates and fuel prices force consumers to tighten purse strings in the World's second-fastest growing auto market after China.

Indian auto sales, which grew at a breakneck pace of 30 percent in fiscal year 2011, are now expected to grow 11 to 13 percent this fiscal year, slower than the 12 to 15 percent forecast earlier.

Car sales in Asia's third largest economy, which in June saw their slowest pace of growth since March 2009, are driven by a burgeoning aspirational middle class that relies mainly on bank loans for its purchases.

But the Reserve Bank of India has raised interest rates ten times since March last year in an effort to battle stubbornly high inflation, a move that has hurt credit-based purchases.

"Policy rates are changing beyond what we had expected three months ago... if there is any further increase, it will have a devastating effect on the industry," Pawan Goenka, president of industry body Society of Indian Automobile Manufacturers (SIAM), said on Monday.

Sales in China, where car sales grew 33 percent last year, are also expected to slow after the government stripped away most of its incentive policies.

Industry observers are divided on how fast the China auto market will grow in the coming years, but the consensus view is a 10 percent annual gain until 2015.

Still, China, on average, sells as many cars a month as India does in a year. With a population comparable to that of India, car sales reached 13.8 million units in 2010, while Indian sales totalled 1.9 million units last fiscal year.

Passenger car sales in India are seen growing at 10 to 12 percent this fiscal year, down from an earlier forecast of 16 to 18 percent, Goenka said.

An increase in vehicle finance rates and fuel prices are the main concerns for the rest of the year, he said. India has raised diesel and petrol prices by about 9 percent in the past two months.

"We have seen slowing sales for three months now and with rising interest rates and negative sentiment among buyers, this trend will prevail for another three months," Vineet Hetamasaria, auto analyst at PINC Research said.

JUNE SALES SLOWEST IN MORE THAN 2 YEARS

Car sales in India rose 1.6 percent in June, according to data from the Society of Indian Automobile Manufacturers (SIAM) released on Monday. The industry sold 143,370 cars.

Sales of trucks and buses however, a key barometer of economic health, rose 17.8 percent to 62,009 vehicles in June.

"Maruti numbers have largely brought the June sales numbers down," Hetamasaria said.

Sales at top car maker Maruti Suzuki India fell 8.8 percent to 80,298 vehicles in June, marking the first fall since December 2008.

Production at Maruti, majority-owned by Japan's Suzuki Motor, was hurt by a strike last month that led to a production loss of about 16,000 cars.

Sales at Tata Motors, India's largest maker of trucks and buses and the manufacturer of the Nano, touted as the world's cheapest car, fell 1 percent. Sales of the Nano plunged 29 percent.

"This was expected. Rising interest rates and inflation are contributing to slowing sales. Also, ahead of the monsoons, demand for cars typically slows down," Kishor Ostwal, chairman at brokerage CNI Research, said.

Foreign automakers, however, continued to post a surge in sales, driven by exports. They are also far newer in India than their domestic counterparts and have easier comparisons with lower base figures that allow for higher growth rates.

The Indian unit of Toyota Motor Corp posted a 94 percent rise in June sales, driven mainly by a big increase in sales of its Etios sedan, which accounted for nearly 50 percent of its sales.

Nissan Motor Co saw sales rise 21 times in comparison with the year ago. Nissan's domestic sales in June stood at 1632 cars, while exports stood at 9,072.

Several global automakers in India such as Toyota, Ford Motor, Volkswagen, Nissan and General Motors are lining up new models and boosting investment in the country, with a focus on exports.