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Automobile

Indian automobile industry group expects demand to revive on new models

Easing interest rates also to help sales improve in November and December

A Maruti Suzuki plant in Haryana, India: The country's auto market is expected to rebound in coming months.   © Reuters

MUMBAI (NewsRise) -- India's main automobile industry group expects sales of passenger vehicles to improve during this month and the next as lower interest rates and new models will help revive demand in Asia's third-largest economy.

Automakers including Maruti Suzuki India and Tata Motors have been grappling with one of the worst-ever downturns for almost a year as consumers cut back on spending in a slowing economy. India's gross domestic product expanded at the weakest pace in five years in April-June as banks tightened credit in the face of ballooning bad debt levels. In a bid to revive growth, Prime Minister Narendra Modi's government has announced a slew of measures including a sharp eight percentage-point cut in headline corporate tax rate to 22%.

Sales of passenger vehicles grew 0.3% to 285,027 units last month, the Society of Indian Automobile Manufacturers, or SIAM, said in a statement on Monday. Cars witnessed a 6.3% decline to 173,649 units, but sport-utility vehicles saw sales surge more than 22%. SIAM's automobile sales are counted as factory dispatches, and not retail sales.

Sales in October was driven by the festival demand that peaked with Diwali, the most prominent Hindu festival, Rajan Wadhera, the president of SIAM, told reporters in New Delhi. It was also driven by the demand for new models such as Kia Motors' mid-size SUV Seltos and MG Motor's SUV Hector, he added.

"The interest rates are coming down, and are actually getting transmitted to the last real transaction level. These indicators do tell us that the sentiment is back," he said. "We should do better than last year in November and December."

About two-thirds of vehicle purchases in India are funding by credit from banks and other financial institutions.

SIAM, however, kept its forecast for a 3%-5% growth for passenger-vehicle sales in the current financial year ending in March. Some analysts also warn that automobile sales this year may be heading to the worst contraction in decades as a prolonged weakness in spending and increasing shift to ride-hailing service such as Ola and Uber may crimp demand for automobiles.

Last month, Nomura warned that the sales of passenger vehicles could slump 15% this fiscal year, with the second half heading to a 6% decline.

According to SIAM, production of passenger vehicles slumped more than 21% last month, as companies adjusted their inventory at dealerships.

Maruti Suzuki India's sales rose for the first time in nine months in October. Maruti has been cutting production and firing employees because of falling sales. Mahindra & Mahindra, the maker of Scorpio and Bolero SUVs, reported a 23% drop in October sales of passenger vehicles, while Tata Motors, India's largest automaker by revenue, saw a 46% slump.

Domestic sales of trucks and buses fell 23% to 66,773 units in October. Sales of two-wheelers declined more than 14% to about 1.76 million units, the SIAM data showed.

SIAM's Wadhera said there is no visibility about the trend for commercial vehicle sales.

"That's largely the mirror of the economy. If the economic conditions start improving, then only you will buy a truck. You don't buy a truck on a sentiment."

--Rituparna Nath and Dhanya Ann Thoppil

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