For first time in three years, car sales fall

New Delhi, Aug 11 : Domestic passenger car sales declined 1.71 percent in July to 87,724 units, reflecting the first decline in about three years, an industry report released Monday said.

Car sales had grown 6.1 percent in June and 14.3 percent in May this year.

Dilip Chenoy, director general of the Society of Indian Automobile Manufacturers (Siam), which prepared the report, attributed the fall in sales to spiralling operational costs and credit crunch following interest rate hikes.

“The cycle time for getting loans has gone up by more than two months, and the financing of cars has come down to 70 percent form 85 percent as average,” he said.

Rising inflation, currently ruling at a 13-year high of 12.01 percent, led to the central bank raising its key lending rate by a total 125 basis points in the last two months to 9 percent, the highest in seven years, pushing up interest rates on auto loans.

"India last saw a contraction in sales in June 2005," Chenoy said.

However, according to the figures released, two-wheeler sales showed an upswing of 19.47 percent to 599,369 units, as compared to 501,691 units sold July last year, with the motorcycle segment alone growing 21.91 percent.

“Two wheelers segment has done well as after a sluggish 2007. Within the segment, the electric two-wheelers showed a year-on-year increase of 95 percent in July alone,” he said.

Despite the entire spur in the small car segment, it was the mid-size car segment which actually had figures in green showing a growth rate of 8.54 percent.

The small car segment showed a decline of 1.87 percent and the executive segment plummeted 29.54 percent.

The overall growth of automobiles (two-, three- and four-wheelers combined) for the April to July period stood just below the psychological two-digit mark at 9.73 percent.

Chenoy, however, clarified that the year-on-year growth of 9.73 percent is not the benchmark as 2007 was a specifically sloppy year for the automobile industry.

“If we compare the figures with last year, we see a growth. However, if we compare the same sales figures with those of April-July 2006, the current sales are a shade below,” he said.

Chenoy said sales would depend on festive season demand, loan cycles and interest rates.

At the same time, he was optimistic that the cyclical update of bus fleets by state transport authorities and new systems like the Bus Rapid Transport (BRT) would increase demand for medium and heavy commercial vehicles.