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Business Trends

India automobile industry group slashes annual growth forecast

Credit squeeze, fuel costs hurt demand for cars and SUVs

Maruti Suzuki India's sales fell for the second straight month in December.   © Reuters

MUMBAI (NewsRise) -- India's main automobile industry group slashed its annual passenger vehicle sales growth forecast as a cash crunch among lenders and weak festival demand hurt automakers.

The Society of Indian Automobile Manufacturers, or SIAM, expects sales of passenger vehicles, including cars, sport-utility vehicles, and vans to grow at best 5.5% in the fiscal year ending March 31. SIAM had previously forecast a growth of 7%-9% for the year.

"In this festive season, the sentiment was not like what we usually saw," Rajan Wadhera, president of SIAM, told reporters in New Delhi on Monday. Automotive demand in the south Asian nation has weakened in line with a slowdown in the overall economy amid rising fuel prices. A credit slowdown in the aftermath of a near meltdown at a major non-banking financial company also made it difficult for small borrowers to get loans for their vehicle purchases as authorities tightened regulations.

According to data from SIAM, sales of passenger cars, SUVs, and vans fell for the second straight month in December, with a 0.4% decline at 238,692 units. SIAM's automobile sales are counted as factory dispatches and not retail sales.

Sales of SUVs recorded a more than 2.3% fall to 65,506 units last month. Car sales fell 2% to 155,159 units, the data showed.

However, Wadhera said a recovery in retail demand has helped bring back the stock to normal levels in December. "Some sentiment has also recovered with fuel prices coming down."

Last week, data from the Federation of Automobile Dealers Association, or FADA, showed sales of passenger vehicles dropped by 3% on-year to 202,585 units in December. According to a FADA members' survey, the current inventory of passenger vehicles is at 35-40 days.

Maruti Suzuki India, the nation's largest car maker, said its sales fell for the second straight month in December with a 1.3% decline amid weak demand at home and a slump in exports. Mahindra & Mahindra, India's second-largest SUV maker, reported a 1% gain in total December sales at 39,755 units. Sales of Mahindra's SUVs, cars, and vans declined 3% in the month.

Analysts, however, remain optimistic of a demand recovery over the next few months.

"We expect wholesale volumes to grow back in the fourth quarter as the seasonally stronger farm produce season and wedding season gathers pace," Goldman Sachs said in a report.

Domestic sales of trucks and buses, considered a barometer of the economy's health, fell 7.8% to 75,984 units in December. Sales of two-wheelers fell 2.2% to about 1.26 million units, the SIAM data showed. -- Shivangi Acharya and Dhanya Ann Thoppil

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