India Car Sales Growth Slows as Rising Rates Dent Demand

Car sales in India grew at the slowest pace since May 2009 as higher interest rates and rising fuel prices damped demand.

Deliveries climbed 7 percent to 158,817 from 148,425 a year earlier, according to data released by the Society of Indian Automobile Manufacturers today. India’s car-sales growth for the year ending March 31, 2012, may slow to half the previous year’s 30 percent increase, Pawan Goenka, president of the industry group, said last month.

“Prices and interest rates have gone up, availability of financing and customer sentiment are down,” Sugato Sen, a senior director of the industry group, told reporters in New Delhi today. “Things are not moving enough at the retail level.”

Auto sales have slowed as the Reserve Bank of India raised interest rates nine times since mid-March 2010 to tackle inflation. Reserve Bank Governor Duvvuri Subbarao on May 3 increased the repurchase rate by half a percentage point to 7.25 percent, the biggest move since July 2008, and indicated he is ready to step up the battle against prices even at the risk of sacrificing growth.

Tata Motors Ltd. (TTMT) shares fell 1.2 percent to 1,015.95 rupees at 1:07 p.m. in Mumbai, set for the lowest close in nine months. Maruti Suzuki India Ltd. (MSIL) shares fell as much 1.1 percent and were changing hands at 1,218 rupees at 1:06 p.m. in Mumbai trading.

Maruti, the maker of about half of India’s passenger cars, said on June 1 that it may miss its sales-growth forecast of as much as 15 percent in the year that started April 1, as increasing interest costs drove down demand for cars in a country where about 80 percent of all sales are funded with loans.

State-owned refiner Indian Oil Corp., the country’s largest, raised the price of gasoline by 5 rupees a liter to 63.37 rupees ($1.4) in New Delhi last month. That is the biggest increase since June 2008.

Sales of trucks and buses increased 16 percent to 56,314 in May, according to the society. Two-wheeler sales climbed 14 percent to 1.07 million.

To contact the reporter on this story: Karthikeyan Sundaram in New Delhi at kmeenakshisu@bloomberg.net; Siddharth Philip in Mumbai at sphilip3@bloomberg.net.

To contact the editor responsible for this story: Kae Inoue at kinoue@bloomberg.net;

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