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Business trends

India passenger vehicle sales slump 17% in June, sparking job cut fears

Industry group says several dealers closing down due to weak demand

SUV sales in India slipped less than 1% in June, while passenger cars fell more than 24%.    © Reuters

MUMBAI (NewsRise) -- Passenger vehicles sales in India slumped 17% in June, underscoring a deepening slowdown that sparks concerns about production cuts and layoffs.

Automotive demand in Asia's third-biggest economy has been cooling for more than a year amid a credit crunch and distress in rural markets. The slowdown in sales prompted many automakers, including Maruti Suzuki India, the nation's biggest, to slash production in recent months. Reflecting the weak consumer spending, India's economy expanded at the slowest pace in four years during January-March.

Sales of passenger cars plunged to 139,628 units last month from 183,885 units a year ago, the Society of Indian Automobile Manufacturers, or SIAM, said in a statement on Wednesday. SUVs recorded a less than 1% decline to 72,917 units, while passenger cars witnessed a more than 24% slump. SIAM's automobile sales are counted as factory dispatches and not retail sales.

"We don't see any signs of things improving," Rajan Wadhera, the president of SIAM, told reporters in New Delhi. The spiraling slowdown may force companies to take urgent cost-cutting measures, including halting expansion plans and hiring, Wadhera said.

"A lot of dealerships have closed down in the past. So the job losses have already started," he said, citing data from the Federation of Automobile Dealers Association.

The industry got a jolt last week, when the federal budget proposed raising duties on auto parts and slapped additional taxes on fuel. Prior to the budget, SIAM had requested the government to lower the goods and services tax on car purchases to 18% from the current 28% to stimulate demand. Instead, the government sought the GST Council to cut the tax rates on electric vehicles to 5% from 12% and offered tax incentives for buyers of EVs.

Still, SIAM expects sales of passenger vehicle to grow 3%-5% in the current financial year, which started on April 1.

Analysts said the government is not in a position to cut GST rates for the automobile industry, given its fiscal position.

"The government's push to recapitalize banks and improve liquidity in non-banking financial companies is a positive for the economy, benefits of which will start reflecting in the next few quarters," local ratings agency ICRA said.

ICRA expects wholesale dispatches to remain weak for the next one or two months, before showing some signs of recovery from the festival season starting in September.

Last month, Maruti posted a 14% slump in sales in June, its fifth straight monthly decline. That prompted analysts to predict a sharp deceleration in Maruti's sales volumes during this fiscal year. Citigroup cut its sales volume outlook for the year by 10% and around 4% for the next fiscal year.

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 6% decline in June sales while Tata Motors, India's largest automaker by revenue, saw domestic sales of its passenger vehicles slump 27%.

Domestic sales of trucks and buses fell more than 12% to 70,771 units. Sales of two-wheelers, too, declined 12% to about 1.65 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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