Auto parts cos cut forecasts as interest rates bite

By Rakesh Sharma and C.J. Kuncheria

NEW DELHI (Reuters) - Indian auto-component makers are scaling back growth projections for the fiscal year as scarce and expensive financing and higher raw-material costs weigh on automobile sales, industry officials said on Wednesday.

Delegates at the Automotive Component Manufacturers' Association's annual session worried about a slowdown in the industry and cited seven-year high interest rates and rising prices of raw materials as their biggest concerns for the year.

India has set a target of $145 billion of revenue in 2016 for the automotive sector, accounting for 10 percent of its economy, from $34 billion in 2006, according to the federal government's Automotive Mission Plan 2016.

Domestic car sales in July fell from a year ago, the first decline in nearly three years, and were weak in August. Both car and bike sales have been declining on the month since April.

Industry officials cite rising vehicle loan rates, at a time when automakers are cutting down on discounts and incentives to protect their margins, as the reason for the decline in sales.

"We are expecting a slowdown. There's no question, with interest rates the way they are and expected to go higher," ACMA president Sanjay Labroo told Reuters. "The only silver lining is that the commodity prices are coming off."

ACMA expects auto-component sales growth to slip to 10-12 percent in the year to March 2009, from 20 percent in the previous year, Labroo said.

"Profitability is going to be affected also. We are in a very price-sensitive business," he added.