India Car Sales Fall for Second Straight Month on Loan Costs

India’s car sales declined in August from a year earlier, the second monthly fall in a row, as high borrowing costs continued to damp demand in a country where about 80 percent of purchases are funded by loans.

Automakers sold 144,516 cars in the nation last month, a 10 percent drop from a year ago, according to data released by the Society of Indian Automobile Manufacturers in New Delhi today.

Maruti Suzuki India Ltd. (MSIL), maker of almost half the cars sold in India, reduced production in August as demand slowed after the central bank raised key interest rates 1.75 percentage points this year to rein in inflation. State-owned Indian Oil Corp., the country’s largest refiner, increased the price of gasoline by 5 rupees a liter to 63.37 rupees ($1.37) in New Delhi in May, the biggest increase since June 2008.

“We hope that the Reserve Bank of India begins looking at reducing rates,” Vishnu Mathur, director general at the manufacturing group, said in New Delhi. “The high rates are impacting the competitiveness of the industry and may force companies to increase prices as their cost of finance rises.”

Shares of Maruti fell 0.3 percent to 1,129.10 rupees as of 12:21 p.m. in Mumbai trading. The stock has declined 21 percent this year, compared with a 17 percent drop in the Bombay Stock Exchange’s benchmark Sensitive Index.

‘Single Digit’ Growth

Maruti expects “single digit” sales growth in the year ending March as higher interest rates and fuel costs damp demand, Mayank Pareek, Maruti’s sales chief, said last month. This falls short of an earlier forecast of as much as 15 percent expansion.

“We will have to wait and see how much of a difference the festival season makes to sales,” Mathur said.

India’s festival season began Aug. 31 with Eid-ul-Fitr and runs through to Diwali, the Hindu festival of lights, celebrated on Oct. 26. The industry group said in July it expects sales to rise 10 percent to 12 percent in the year ending March, trimming an earlier forecast of 16 percent to 18 percent growth.

Industrywide sales of trucks and buses rose 23 percent to 64,248 in August, according to the group. Two-wheeler sales grew to 1.11 million vehicles, up from 957,236 a year earlier.

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

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

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