Car sales jump in Feb but recovery distant

NEW DELHI Mon Mar 9, 2009 11:51am IST

A worker opens the door of a new car on display at a showroom in Mumbai in this August 3, 2006 file photo. Car sales in India snapped a four-month slide in February, rising nearly 22 percent from a year ago, as banks lowered loan rates and firms passed on tax cuts, bolstering efforts to stem an economic slowdown. REUTERS/Punit Paranjpe

A worker opens the door of a new car on display at a showroom in Mumbai in this August 3, 2006 file photo. Car sales in India snapped a four-month slide in February, rising nearly 22 percent from a year ago, as banks lowered loan rates and firms passed on tax cuts, bolstering efforts to stem an economic slowdown.

Credit: Reuters/Punit Paranjpe

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NEW DELHI (Reuters) - Car sales in India snapped a four-month slide in February, rising nearly 22 percent from a year ago, as banks lowered loan rates and firms passed on tax cuts, bolstering efforts to stem an economic slowdown.

But analysts and industry officials said the industry was still far from a lasting recovery and the months ahead would be challenging with credit still tight and consumers worried over possible job losses as industrial activity brakes sharply.

Data from the Society of Indian Automobile Manufacturers (SIAM) showed on Monday automakers sold 115,386 cars during the month, up 21.8 percent from 94,757 sold in the year-ago month.

"Some finance has started flowing into the market," SIAM's director general Dilip Chenoy told reporters, "But not in a significant way for two wheelers and commercial vehicles. Everyone is focusing on cars."

Auto makers have long seen emerging markets like China, India, Russia and South America as long-term growth markets, anticipating robust demand there to make up for declining sales in developed markets like the United States, Europe and Japan. But sales have slumped in these markets as the global financial crisis washed up on their shores, sending markets and growth prospects lower.

India usually sees stronger demand in March, when tax cuts traditionally unveiled in February's federal budget kick in. This year the government trimmed factory gate duties in December to try and inject some life in flagging growth.

Chinese sales slowed to single digits in 2008, before government incentives helped to boost them by 33 percent in February.

Car sales are a leading gauge of consumer sentiment in India, in the absence of other indices, and have fallen six times in the last seven months. In the year from April they are up a marginal 1.35 percent, compared with a 11.8 percent jump in 2007/08.

SIX-YEAR LOW

India's economy, Asia's third-largest, expanded 5.3 percent in the December quarter, the slowest pace in six years, compared with the 9 percent or more growth seen in the past three years.

The slowdown has triggered job and wage cuts, and as the global credit crisis froze over Indian markets in October financial institutions froze lending for vehicle purchases.

In turn, automobile sales crumpled and manufacturers cut production.

To boost demand, India has cut factory gate taxes and the central bank has aggressively trimmed its key lending rate to 5 percent, the lowest since 2000.

Analysts and industry officials say any long-term recovery hinges on affordable and easy credit. Some banks have lowered rates on car loans, while some carmakers have tied-up with lenders to improve loan disbursals to customers.

Asked if the government's stimulus packages had helped, Chenoy said: "The numbers say the same thing. Financing has started, the excise duty cuts have helped."

Chenoy said if the uptick continued, automakers would likely see a marginal increase in sales from a year ago. But he also said March sales would be "challenging", and did not give an outlook for the year beginning April.

Sales of trucks and buses, linked to the pace of economic activity, fell 31.7 percent to 31,069 units, the data showed.

Industrial activity has shrunk, and manufacturing output is expected to contract further in February.

Sales of motorcycles rose 15.6 percent to 491,462 units during the month, largely on better demand from rural markets, which have been cash flush on good harvests, Chenoy said.

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