Car sales in India grew at their slowest pace in more than two years in June with auto makers such as Ford Motor Co., General Motors Co., Honda Motor Co. and Tata Motors Ltd. losing out as higher fuel prices and rising loan rates kept buyers away from showrooms.
Sales grew 1.62% to 143,370 cars from 141,086 a year earlier, according to data issued Monday by the Society of Automobile Manufacturers, an industry lobby group.
This is the lowest percentage gain since a 1.16% increase in March 2009, when sales were hit by the global economic slowdown. The single-digit growth in June follows 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. India's state-run oil retailers raised gasoline and diesel prices by 5 rupees ($0.11) per liter 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 to 10%-12% in the current financial year that started April 1. The industry body was earlier expecting car sales to grow between 16% and 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 Ltd., 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 March 31, the highest growth rate since 1999-2000. Car sales in June were also partly impacted by a strike at one of Maruti Suzuki India Ltd.'s factories. The local unit of Suzuki Motor Corp., 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.
Local car sales at Maruti fell 6% in June to 57,653 units because of the strike. Sales at the local unit of Hyundai Motor Co. and India's second-largest car maker grew 11% to 30,302 cars, but that at Tata Motors Ltd., the country's third-largest car maker, fell 23% to 18,522 cars. General Motors India Pvt. Ltd. posted a 21% drop in sales to 6,288 cars, while Ford India Pvt. Ltd. recorded a 5% fall to 6,692 cars. Sales at Honda's local car 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.