First fall in 3 years for India car sales

India’s auto sales fell in July for the first time in nearly three years, magnifying concerns that growth in Asia’s third-biggest economy is slowing down more than forecast by the government.
The Society of Indian Automobile Manufacturers said on Wednesday that vehicle sales slumped 16 per cent to 133,747 units compared with 158,767 the year before – a sharper fall than expected by most analysts.
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The sales crash registered in July is in stark contrast to a year ago when carmakers posted, on average, 20 per cent sales growth every month. The industry’s slowdown also highlights the damaging effect that rising fuel prices and the central bank’s aggressive anti-inflationary policy are having on consumer spending.

“We were expecting a slowdown but this is far greater than expected,” said Deepesh Rathore, managing director of IHS Automotive India. “Interest rates have gone up fast over the past year and now you can’t get a car loan for less than double digit interest rates … this hits sales.”
“Sales are likely to remain subdued for the rest of the year as we expect more interest hikes this year,” he added.

The Reserve Bank of India raised the country’s benchmark interest rate to 8 per cent in July – the 11th increase in 18 months. The bank reiterated last week that its priority would continue to be reining-in high food and commodity prices, at the cost of sacrificing economic growth in the short term.
The drop in car sales also comes just a few days after the office of India’s prime minister downgraded the country’s growth forecast for the current fiscal year to 8.2 per cent from 9 per cent earlier this year. However, more pessimistic investment bank economists expect India’s growth to be closer to 7 per cent.

The sharp fall reflected the decreasing sales reported by Maruti Suzuki and Tata Motors, India’s largest and second biggest carmakers respectively.

Maruti posted a record 25 per cent drop in July sales, as the New Delhi-based group was hit by slowing demand and production troubles at one of its plants. Tata Motors, which also owns the luxury marque Jaguar and Land Rover, said overall sales dropped 6 per cent year-on-year to 63,761 in July.

However, passenger-vehicle sales for the Mumbai-based group fell 38 per cent and its flagship Nano, the world’s cheapest car, plummeted 64 per cent compared to the previous year.
Meanwhile in China, passenger vehicle sales remained weak as expected in July, a traditionally slow month for sales. Domestic sales of cars, sports-utility vehicles, multipurpose vehicles, and light commercial minivans rose only 3.6 per cent year-on-year in July, falling 6.1 per cent from June to 957,724 units, according to data released by the China Passenger Car Association (CPCA) this week.

Much of the weakness was explained by slow sales of light commercial vehicles, rather than traditional passenger cars. Sales of luxury cars remained strong, with Mercedes-Benz reporting this week nearly 50 per cent sales growth, year-on-year, in the first seven months of 2011.
Most analysts expect demand to pick up in the autumn, yielding up to 10 per cent growth in passenger vehicle sales for the year.