Rising rates, fuel prices hurting India autos demand

SEOUL/TOKYO Mon Aug 1, 2011 1:37pm IST

Workers clean parked cars at the Maruti Suzuki's stockyard on the outskirts of Jammu September 9, 2010. REUTERS/Mukesh Gupta/Files

Workers clean parked cars at the Maruti Suzuki's stockyard on the outskirts of Jammu September 9, 2010.

Credit: Reuters/Mukesh Gupta/Files

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SEOUL/TOKYO (Reuters) - New vehicle sales in Japan fell by a record in July, battered by production disruptions from the March 11 earthquake, while South Korean rivals extended their winning streak to report strong global sales.

Sales of new vehicles, excluding 660cc minicars, in Japan fell 27.6 percent to 241,472 vehicles, with Toyota Motor Corp leading the decline.

"Looking at the trend from April onwards, the situation hasn't changed much from June," said Michiro Saito, general manager at the Japan Automobile Dealers Association.

"Vehicle supply won't return right away and we're looking forward to the production recovery at automakers from around September."

Toyota's sales fell 37 percent, while Honda Motor Co's dropped 33.2 percent. Nissan Motor Co, which has been less impacted by the March earthquake and tsunami, fared better with a 17.6 percent fall.

Including 660cc minicars, Japanese new vehicle sales fell 23.3 percent to 373,058 vehicles, data showed on Monday.

But Japanese carmakers are recovering production faster than expected. Honda Motor avoided an expected quarterly loss and raised its annual profit guidance by more than a third on Monday, while Nissan Motor last week reported a smaller-than-expected decline in quarterly profit.

Top automaker Toyota reports quarterly earnings on Tuesday.

MARUTI SALES IN RECORD FALL

Maruti Suzuki, India's top carmaker, posted a record 25 percent slump in July sales as production of one of its popular sedans was crippled due to a shift in its manufacturing facility.

Carmakers in India are seeing a drop in demand amid surging interest rates and fuel prices in the world's second-fastest growing auto market after China.

"Rising interest rates, fuel prices and vehicle costs are taking a toll on demand, but with the onset of the festive season, the sentiment should begin to improve and numbers should pick up from September," SAID Vineet Hetamasaria, an auto analyst at PINC Research in Mumbai.

Indian car sales, which grew at a breakneck 30 percent in the fiscal year that ended in March, are now expected to grow by just 10 to 12 percent this fiscal year, down from an earlier forecast of 16 to 18 percent, the Society of Indian Automobile Manufacturers said last month.

The demand outlook has weakened further after the central bank surprised investors by raising interest rates by 50 basis points last week, in a battle to fight persistently high inflation.

MORE COMPETITION

South Korean carmakers Hyundai Motor and Kia Motors extended their gains in July after their sales accelerated in the past few months as quake-hit Japanese rivals suffered from a dearth of components.

The duo, which together rank fifth in global car sales, posted consensus-beating profits for the April-to-June quarter last week.

Hyundai and Kia have outperformed even during the global financial crisis, steadily gaining market share while Japanese rivals reeled from a strong yen, auto recalls and the earthquake.

Korean automakers are expected to still post robust sales and earnings in the second half, but face intensifying competition from reviving Japanese rivals, a strengthening won and a slow market recovery, analysts say.

"It is true that competition will heat up as Japanese rivals plan to roll out a series of new models. But it remains to be seen whether their new models appeal to customers and they will regain consumer confidence," said Lee Sang-hyun, an analyst at NH Investment & Securities.

Hyundai's global sales climbed 10 percent last month, while Kia's global sales rose 15 percent.

Hyundai and Kia are also set to release U.S. sales data for July on Monday U.S. time, with eyes on whether the duo will be able to maintain market share, which hit a combined record 10.1 percent in May.

"Hyundai and Kia's production cannot keep up with demand. Their U.S. market shares are expected to hover around the current 10 percent in the third quarter, and fall in the fourth quarter because of seasonality," said Park In-woo, an analyst at LIG Investment & Securities.

(Additional reporting by Neha Singh in MUMBAI; Editing by Matt Driskill)

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