Car sales in India grew at their slowest pace in over two years in June – just 1.62% to 143,370 cars from 141,086 – as higher fuel prices and rising loan rates kept buyers away from showrooms.
This is the lowest percentage gain since a 1.16% increase in March 2009, when sales were hit by the global economic slowdown, Dow Jones reported. The single-digit growth in June followed a rise of 7% in May and 13% in April.
Prolonged inflation, which forced auto makers to raise prices to offset higher raw material costs, has crimped demand for new vehicles in India in the past few months. Also, the Reserve Bank of India has raised its lending rate by 2.75 percentage points since March 2010, prompting customers to defer purchases, the report said.
India’s state-run oil retailers raised petrol and diesel prices by INR5 per litre in May and June, respectively, also deterring customers.
These factors prompted the Society of Automobile Manufacturers, or SIAM, to revise its annual forecast for car sales down to 10%-12% in the current financial year that started on 1 April from 16% to 18%.
“We are closely monitoring [rising] interest rates, higher fuel prices and input costs,” Pawan Goenka, president of SIAM, told reporters. “We expect auto sales to start improving after September-end due to the festival season.”
The two-month long festival season, which usually starts in October, is considered auspicious by many in India to make new purchases.
“The impact of higher interest rates and fuel prices have been evident in the passenger car segment, which has seen a significant decline in its growth rate,” Yaresh Kothari, analyst with Mumbai-based Angel Broking, said in a recent report.
“We believe low [vehicle] penetration levels coupled with a healthy and sustainable economic environment and increasing per capita income will drive long-term growth of the auto industry.”
Car sales in India surged 30% in the financial year ended 31 March, the highest growth rate since 1999-2000.
Car sales in June were also partly impacted by a strike at one of Maruti Suzuki India’s factories. The automaker, which accounts for about half of the car sales in India, lost production of 12,600 vehicles due to the strike. It also stopped production at its Manesar and Gurgaon factories in Haryana state for six days each for maintenance.
Domestic Maruti sales fell 6% in June to 57,653 units because of the strike.
Sales Hyundai Motor sales grew 11% to 30,302 cars, but Tata Motors volume was off 23% to 18,522 cars, Dow Jones said.
Sales by Honda’s local unit fell 24% to 3,441 cars in June due to lower supply of auto parts from its factories in Japan following the earthquake and tsunami in March.