Car sales growth heads for nine-year low

NEW DELHI (Reuters) - India's car sales are expected to post their weakest growth in nine years, if any at all, as automakers such as Tata Motors (NSI:TATAMOTORS) and Maruti Suzuki (NSI:MARUTI.NS - News) battle with falling demand due to high interest rates and rising car ownership costs.

Slumping GDP growth, rising fuel prices and expensive credit have slashed car sales in India, a market that was the toast of the industry two years ago and has attracted billion-dollar bets from global manufacturers hungry for growth.

"Negative sentiment among lower-end customers by virtue of interest rates not coming down, high fuel charges; all these put together is hurting sentiments," said S. Sandilya, president of the Society of Indian Automobile Manufacturers (SIAM).

SIAM cut its car sales growth forecast for the year that ends in March to 0-1 percent on Wednesday, its third downgrade this financial year from an initial estimate of 10-12 percent.

Car sales in India, where major players include Tata, Maruti and South Korea's Hyundai Motor Co, have grown every year since the financial year that ended in March 2004.

Lobby group SIAM will appeal to the government for industry-boosting measures including cutting taxes on larger cars in March's federal budget, Sandilya told reporters at a quarterly press briefing in New Delhi.

"Going by current trends, we do not think the industry will be able to recover in the fourth quarter (January-March) unless government extends full support," said Sandilya, who called on the central bank to reduce "extremely high" interest rates which currently stand at 8 percent.

Most of India's large and rapidly-growing middle class, largely responsible for powering car sales growth, depend on loans and credit for big purchases.

SIAM also cut its forecast for motorcycle sales growth this financial year to 3-5 percent from 5-7 percent previously, and for commercial vehicles to 0-2 percent, again citing high interest rates and slowing economic growth.

Car sales in December fell 12.5 percent year-on-year, SIAM said, their second straight monthly decline and fourth in five months. Sales so far this financial year are down 0.33 percent on the same period a year ago.

After a 30 percent expansion in sales in the financial year 2010-11, a slew of global carmakers including Ford, General Motors, and Nissan invested billions of dollars in building up their Indian operations.

But a series of interest rate rises by the inflation-wary Reserve Bank of India combined with a slowdown in India's once-breakneck GDP growth saw sales growth fall to just 2.2 percent last year.