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India: Car sales lowest in 12 years, truck down 35%

The Times of India (New Delhi) – Economic slowdown, high interest rates and dearer fuel have punctured the momentum of the Indian car industry, with sales dropping 26% in February, the sharpest monthly decline in over 12 years. Commercial vehicle sales, a key barometer of economic health, fell 35% during the month, indicating that the worst may not be over yet.

According to numbers released by Society of Indian Automobile Manufacturers (Siam), car sales in February 2012 fell to 1.58 lakh units, compared to 2.13 lakh units a year ago. The year-on-year growth decline is the highest since the 40% fall witnessed in December 2000.

The industry, already saddled by high inventory levels, is worried that a revival will be difficult to come by as overall factors remain far away from assisting any immediate upturn. "There is no improvement in the market sentiment. People have more or less stopped discretionary purchases," Sugato Sen, deputy director general of Siam said. "This has really impacted the bottom of the pyramid, people who buy the smaller cars," he said, referring to the slowing economy which is growing at its worst pace in over a decade. "That is getting reflected in the numbers."

Siam has already pulled down its car sales growth forecast for the year that ends on March 31 to 0-1%, its third downgrade this financial year from an initial estimate of 10-12%. Top functionaries have said that growth may even slip into the negative territory, and this will make it the slowest pace of growth in a decade.

Maruti, the top maker that saw a 9% decline in February sales, closed its Gurgaon factory for a day last week to pare inventory.

Hyundai, the country's second-biggest carmaker, expects the tough times to continue. "The market was suppressed as there was drop in enquiries with lower rates of conversions to purchase. The increase in fuel prices negatively impacted the already low market sentiments. We expect the challenge to continue in the next quarter until there is a significant change in macro-economic conditions," said Rakesh Srivastava, VP (sales and marketing) at Hyundai India.

Toyota, General Motors, Ford, Tata Motors and Ford also saw a contraction in volumes. Many have criticised the government decision to tax SUVs higher, saying it might further slow down the industry as it was the only category that had been witnessing a healthy growth.

"…the market continues to remain subdued. Now with excise duty also going up for certain categories of vehicles, the market is not expected to improve in the coming months also as the macro economic uncertainties still continue. The hike in excise duty for SUVs, which is impacting other models as well, has further dampened the growth prospects," said P Balendran, VP at GM India.

The story is repeated in the medium and heavy commercial vehicles segment with industry majors Tata Motors, Ashok Leyland and Volvo Eicher continued to suffer due to a fall in demand for vehicles to ship cargo. "Truck owners continue to be skeptical about economic recovery in the near future and road freight market is under pressure from the oversupply of trucks," said SP Singh of Indian Foundation of Transport Research and Training.

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