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INDIA: Maruti blamed as car sales fall 24%

By Tony Lewis | 9 November 2011

New car sales in India fell 23.8% in October, the biggest monthly percentage decline since December 2000 and the fourth consecutive month of decline, according to the Society of Indian Automobile Manufacturers (SIAM). Part of the fall was blamed on industrial unrest at India's leading car maker Maruti Suzuki.

The association also blamed rising finance costs and increasing prices in Asia's third-largest economy for the decline which is in sharp contrast to the 30% year-on-year growth experienced at the start of 2011.

"People who have taken a loan to buy a car already have a home loan," Vishnu Mathur, director general of SIAM said. "A rise in interest rates will discourage them to take car loans."

The industry body last month cut its sales growth forecast for the current financial year to 2-4%, the second cut in estimates from an initial forecast of 16-18%.

The market is driven by a swelling aspirational middle class that mostly relies on bank financing for purchases. The Reserve Bank of India's 25 basis point increase in interest rates last month was its 13th hike since March 2010.

Indian automakers sold 138,521 cars last month, according to SIAM, with petrol car sales hit the hardest.

"There is hardly any demand for petrol cars today," said Mathur. "Demand for diesel cars is going up but there is not so much capacity."

Sales fell 1.8% in September, 10.1% in August and 15.8% in July, the first slide in three years.

Carmakers had been hoping for a sales boost in October, typically a bumper month because of a string of religious festivals that traditionally encourage Indians to make big-ticket purchases.

Maruti Suzuki, the country's top carmaker, said last week it had sold less than half the cars in October it did a year previously as months of labour unrest that crippled production compounded the slowdown in demand.

Strikes since August by disgruntled workers have cost the carmaker more than US$500m in lost production and slashed its market share to 40% from more than 50% last year.

"Maruti is one of the major reasons (for the fall)," said Mathur. "There will be some kind of correction in coming months if Maruti comes up to full capacity."

Rivals Tata Motors and Mahindra & Mahindra have benefited from Maruti's woes, with Tata sales up 5% last month and Mahindra sales jumping 20.3%, according to company data.