India’s Car Sales May Slow on Gasoline, Interest Costs

India’s automakers group may reduce its annual sales forecast at a review next month after passenger car sales growth slowed in May as gasoline prices rose to a record and borrowing costs remained high.

“Demand for passenger cars may move into negative territory because the overall market sentiment is very negative,” Vishnu Mathur, director general of the Society of Indian Automobile Manufacturers, told reporters in New Delhi today. “Interest rates aren’t going down as quickly as we expected and petrol prices have gone up tremendously.”

The industry group, which in April estimated car sales will gain as much as 12 percent in the year ending March 31, plans to review its forecast after May sales fell at Maruti Suzuki India Ltd. (MSIL), and the Indian units of Ford Motor Co. and General Motors Co. (GM) because of the first gasoline price increase in almost 6 months. The group cut its car sales growth forecast three times in the year ended March 31, 2012.

State-owned oil firms led by Indian Oil Corp. (IOCL) raised prices on gasoline by 7.5 rupees ($0.14) in New Delhi to 73.18 rupees a liter in May. Even after a 2 rupee cut in gasoline prices in June, gasoline is 74 percent more expensive than subsidized diesel, prompting demand to shift to vehicles powered by the cheaper fuel.

Deliveries of passenger cars gained 2.8 percent to 163,229 in May, the industry group said today. High borrowing costs and fuel prices damped demand in a nation where almost 80 percent of all car purchases are funded through bank loans. The Reserve Bank of India cut rates on April 17 for the first time in three years, after raising it a record 13 times from March 2010 to October last year to cool accelerating prices.

To contact the reporters 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: Young-Sam Cho at ycho2@bloomberg.net

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