Indian auto sales dragged down by cars

Cars sales in India fell 10 percent in August, pulling down total passenger vehicle sales for the second month in a row, as high interest rates and rising costs hit demand in Asia's third-largest economy. Demand for cars, which had shrunk in July for the first time in nearly three years, is expected to remain under pressure in a slowing economy that grew 7.7 percent in April-June, the weakest pace in six quarters.
Car sales are expected to grow by just 10 to 12 percent this fiscal year to next March, down from an earlier forecast of 16 to 18 percent and compared with a robust 30 percent jump in 2010/11. Demand for cars in the world's second-fastest growing auto market after China has also been dented in recent months by high fuel prices, with many first-time buyers plumbing for motorcycles or scooters.
Sales of passenger vehicles, which include cars, vans and utility vehicles, fell 5.9 percent to 191,914 in August, data released by industry body Society of Indian Automobile Manufacturers (SIAM) showed on Friday. Car sales fell 10.1 percent to 144,516, but sales of utility vehicles rose 12.3 percent to 26,975 and vans rose 6.7 percent to 20,423. All the figures exclude export numbers.
"Why car sales are down is because rate hike is creating a huge negative sentiment," said Sugato Sen, senior director at SIAM. India's central bank has raised interest rates 11 times since March last year in an effort to battle stubbornly high inflation, a move that has hurt credit-based purchases and slowed economic growth.
The Indian automobile market, which saw a 15.8-percent decline in July, is driven by a burgeoning and aspirational middle class that mostly relies on bank loans for purchases. Maruti Suzuki , India's largest car maker which is 54.2 percent owned by Japan's Suzuki Motor Corp , posted a 12.7 percent drop in August sales, while rival Tata Motors reported a 3 percent decline.
The automakers are hoping for pick up in vehicle demand in the festive season, but analysts say the high interest rates and vehicle costs may impact buyer sentiment this year. Sales of products ranging from automobiles to consumer durables typically rise during the annual festive season in India, which starts in September and peaks in early November after the Hindu festival of lights.