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Oct car sales suffer biggest fall in decade

autos Updated: Nov 09, 2011 13:32 IST

Car sales in India fell 23.8% in October, the biggest percentage drop since December 2000, an industry body said, on higher interest rates and vehicle costs and labour unrest at the country's dominant carmaker, where sales fell by half.

Rising finance costs and increasing prices drove down demand in Asia's third-largest economy for a fourth consecutive month, hurting carmakers that only months ago cheered a 30% rise in sales over the previous financial year.

Sales figures were dragged down by the fallout from months of sporadic strikes at plants operated by Maruti Suzuki, which until recently sold roughly half the cars in India. Maruti said last week it sold less than half the cars in October that it did a year ago.

"The macroeconomic scenario is very weak, and that's obviously impacting the numbers," said Joseph George, auto analyst at Mumbai-based brokerage India Infoline.

"But, the industry ex-Maruti is not as gory as it looks."

Indian automakers sold 138,521 cars last month, according to the Society of Indian Automobile Manufacturers (SIAM).

Sales fell 1.8% in September, 10.1% in August and 15.8% in July, the first slide in three years.

The market is driven by a swelling aspirational middle class that mostly relies on bank financing for purchases. The Reserve Bank of India's 25 basis point increase in interest rates last month was its 13th hike since March 2010.

"People who have taken a loan to buy a car already have a home loan," said Vishnu Mathur, SIAM director general. "A rise in interest rates will discourage him to take that car loan."

SIAM last month slashed its sales growth forecast for the current financial year to 2-4%, the second cut in estimates from an initial forecast of 16 to 18%.

Maruti drags

Carmakers had hoped for a sales boost in October, typically a bumper month due to a string of religious festivals that traditionally encourage Indians to make big-ticket purchases.

But market-leader Maruti, 54.2-percent owned by Japan's Suzuki Motor Corp, has seen production severely dented by strikes at its factories in north India that began in June and were resolved last month.

Disgruntled workers that downed their tools and brought factories to a halt cost the carmaker more than $500 million in lost production this summer and slashed its market share to 40% from almost 50% before the unrest began.

"Maruti is one of the major reasons (for the fall)," said Mathur. "There will be some kind of correction in coming months if Maruti comes up to full capacity."

Rivals Tata Motors and Mahindra & Mahindra have benefited from Maruti's woes, with Tata sales up 5% last month and Mahindra sales jumping 20.3%, according to company data.

Domestic carmakers are seen reporting lower revenues and tighter margins in the quarter ending September. Maruti posted a 60% fall in profits for the quarter ending September, almost double the estimates.

However, sales of commercial vehicles, a key indicator of the country's economic activity, rose 18.5% to 61,800, SIAM said.

Tractor sales have risen thanks to a sharp jump in labour costs that have forced farmers to use machinery, as other commercial vehicles see the benefits of central and state government schemes to boost rural infrastructure.

"The car market is driven more by sentiment and not nearly by economic activity. That is why commercial vehicles are still showing growth," said Mathur.

Sales of motorcycles, used as a family vehicle by millions of Indians, rose 0.7% to 879,883 vehicles.