India's July car sales dive as rate hikes bite

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Indian car sales slid almost 16 per cent in July from a year ago, their biggest drop in nearly three years, as high interest rates kept buyers out of the showrooms, data showed on Wednesday.

Car sales -- viewed as a barometer of India's overall economic health -- plunged last month by 15.76 per cent to 133,747 units from 158,767 in the same month last year, the Society of Indian Automobile Manufacturers (SIAM) said.

"People want cars, they want mobility, but they may be postponing their purchases hoping interest rates will go down," Vishnu Mathur, director general of SIAM, told reporters in New Delhi.

The drop was the steepest since November 2008 when sales fell over 19 per cent as countries worldwide were hit by the global financial crisis.

The decline was the latest sign of a weakening of India's economy that is expected to be exacerbated by renewed global financial turmoil.

Last week, the HSBC Purchasing Managers' Index, keenly watched as a leading growth indicator, showed the pace of manufacturing expansion hit a 20-month-low in July.

Mathur said car sales could pick up with a flurry of upcoming model launches beginning this month and the religious festival season starting in September -- seen as an auspicious time for Indians to make new purchases.

The slowdown comes as global manufacturers such as Ford, Renault-Nissan, General Motors and other companies have been relying on India and neighbouring emerging market giant China to help offset saturated markets in the West.

Rising vehicle costs on the back of steeper commodity prices, higher fuel prices and 11 interest rate hikes by India's central bank since March 2010 to tame near double-digit inflation have combined to hit demand, SIAM said.

Earlier this month leading Indian car maker, Japanese-owned Maruti Suzuki, reported a 25.3 per cent drop in sales, its sharpest-ever monthly fall, due to higher borrowing costs and production disruptions.

The SIAM executive director said the group was sticking to its growth forecast projecting a 10 to 12 per cent rise in passenger car sales for this fiscal year.

The forecast has already been revised downward once.

Car sales grew by a blistering 30 per cent to 1.98 million units during the last fiscal year to March 2011, the most in over a decade, as an increasingly affluent middle class snapped up new models when borrowing costs were lower.

Year-on-year sales of motorcycles and other two-wheelers jumped 12.6 to 1.06 million units in July while commercial vehicles sales climbed 23.70 per cent to 84,241.

Mathur said the longer-term outlook for the car sector remained positive thanks to India's highly underpenetrated market.

Just one in 10 households in urban areas and one in 50 in rural areas owns cars, and the country has one of the world's fastest-growing auto markets.