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Business trends

India car sales post worst slump in 18 years in May amid weak economic growth

Industry group calls for government help to stimulate demand

MUMBAI (NewsRise) -- Passenger vehicles sales in India recorded the worst monthly slump in 18 years in May, as a prolonged slowdown gripped the automobile industry amidst a credit crunch.

Automotive demand in India has been cooling since July as the country faced a credit crunch and distress in rural markets. The slowing sales prompted Maruti Suzuki India, the nation's biggest carmaker, and top two-wheeler maker Hero Motocorp to slash production in recent months. Amid the weaker consumer spending, Asia's third-largest economy expanded at the slowest pace in four years during January-March.

Sales of passenger vehicles plunged 21% to 239.347 units in May, the Society of Indian Automobile Manufacturers, or SIAM, said in a statement on Tuesday. SUVs recorded a 5.6% decline to 77,453 units, while passenger cars recorded a 26% slump. SIAM's automobile sales are counted as factory dispatches and not retail sales.

Executives at SIAM said the current trend is "unprecedented" and warranted more attention as it indicated a deeper slowdown that was last seen in September 2001, when the government was forced to cut taxes to stimulate demand.

"The current slowdown is not a trend related to elections anymore," Vishnu Mathur, director general of SIAM, told reporters at a news conference in New Delhi. "The industry is still in inventory correction mode with scheduled and unscheduled cuts by many manufacturers."

According to Mathur, the government should offer a stimulus package for the sector, including a cut in the Goods and Services Tax and extended sops on research and development costs incurred by automakers.

"It is important to recognize this slowdown well in time and take appropriate measures," he said.

Still, the industry group kept its forecast of a 3%-5% growth for passenger vehicle sales in the current financial year that started April 1.

According to private weather forecaster Skymet, India's monsoon rains, the mainstay of the farm-dependent economy, will deliver less rains than average this year. State-run India Meteorological Department has predicted average rainfall over the season.

Several industry observers and officials at automakers including Maruti Chairman R.C. Bhargava had in the past dismissed the current slowdown as a trend that typically emerges ahead of general elections when government spending slows down. India's federal elections were held in April-May this year.

Maruti's Bhargava expects the demand to recover in the second half of this fiscal year. The optimism was also driven by hopes that India's Monetary Policy Committee would further pare interest rates to stimulate demand. Last week, the MPC cut policy rates by 25 basis points for the third straight time, citing the sharp slowdown in investment activity and moderating private consumption.

Last month, Maruti posted a 22% slump in sales. The Suzuki Motor unit's overall sales last year barely grew 4.7%, forcing the company to cut production by 21%. Mahindra and Mahindra reported a 3% decline in May sales while Tata Motors, India's largest automaker by revenue, saw domestic sales of its passenger vehicles drop 38%.

Domestic sales of trucks and buses fell more than 10% to 68,847 units. Sales of two-wheelers declined 6.7% to about 1.73 million units, the SIAM data showed. SIAM expects sales of two-wheelers to grow 5% to 7% this fiscal year.

--Shivangi Acharya and Dhanya Ann Thoppil

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