April 10, 2012 / 6:57 AM / 7 years ago

Car sales up 2.2 pct in FY12, crash to 3-year low

NEW DELHI (Reuters) - Car sales in India rose just 2.2 percent in the fiscal year that ended in March, a year to forget for automakers marked by demand-smothering high interest rates and rising fuel costs, but are seen posting double-digit growth this year.

Traffic moves across Howrah Bridge in Kolkata April 8, 2011. REUTERS/Rupak De Chowdhuri/Files

Sales rose an annual 19.7 percent in March, a fifth straight monthly increase, but still lower than the 30 percent growth seen in the 2010/11 fiscal year, before India’s GDP growth started to temper and 13 interest rate increases began to bite.

“We believe interest rates will maintain or go down from here and fuel prices will remain stable,” said S. Sandilya, president of the Society of Indian Automobile Manufacturers (SIAM).

The growth is the slowest since the fiscal year 2008/09, when sales rose only 1.4 percent as India grappled with the impact of the global financial crisis. Sales grew 25 percent in 2009/10 and 29 percent in 2010/11.

Car sales are expected to grow 10 to 12 percent in the current fiscal year to end-March 2013, SIAM said on Tuesday.

Breakneck domestic car sales growth over the past few years has attracted the who’s who of the world’s biggest car makers, including Ford Motor Co (F.N) and Volkswagen AG to spend billions of dollars setting up factories in the country.

But demand for cars fell for the first time in three years last July and slumped by the most in over a decade in October as high interest rates and rising fuel costs deterred buyers, who are typically reliant on loans for purchases.

Maruti Suzuki (MRTI.NS), the country’s biggest car maker, sold 10.8 percent less cars in the 12 months to March than a year previous, as the company, 54.2 percent owned by Japan’s Suzuki Motor Corp (7269.T), also suffered production losses on widespread labour strikes at its factories.

Strong sales in March, which saw 229,866 cars sold, are partially explained by a traditional rush to buy vehicles in anticipation of factory gate duty increases in the 2012/13 annual budget announced during the month, Sandilya said.

Tata Motors (TAMO.NS) and Mahindra & Mahindra (MAHM.NS), India’s third and fourth largest car makers, posted their highest-ever monthly sales totals in March.

The budget raised factory gate duty on cars from April 1, pushing up prices, but did not impose a feared tax on diesel vehicles. Sales of diesel cars have soared in recent months, thanks to government subsidies that make the fuel around 50 percent cheaper than petrol.

Sales of motorcycles, a family vehicle for hundreds of millions of people in India, rose 12 percent in the previous fiscal year to 10.1 million vehicles. Sales are expected to grow 10 to 12 percent in the current fiscal year, SIAM said.

Sales of trucks and buses, a key indicator of economic activity, rose 18.2 percent in 2011/12 and are seen growing 9 to 11 percent in this fiscal year.

Writing by Henry Foy; editing by Malini Menon

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