India may boost slowing auto sales

NEW DELHI — India’s government will take steps to boost auto sales in the world’s second-fastest growing major economy after higher interest rates crimped demand this year and forced Tata Motors Ltd. and Hero Honda Motors Ltd. to cut output.

By (Bloomberg)

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Published: Thu 6 Sep 2007, 9:14 AM

Last updated: Sat 4 Apr 2015, 11:33 PM

“We are keenly watching the outcome of the second quarter,” Sontosh Mohan Dev, heavy industries minister, said in New Delhi yesterday. “If need be, we will certainly intervene to sustain growth.” Dev didn’t say what measures would be taken.

Five-year high interest rates have slowed demand for cars and sport-utility vehicles in India, where most vehicles are bought on credit. That’s prompted companies to delay opening new factories and cut production.

Car sales in April, May and June grew at 11.3 per cent, 9.1 per cent and 16.4 per cent. That compares with 16.6 per cent, 29.7 per cent and 25.3 per cent in the same months a year earlier. Almost three-quarters of cars sold in India, Asia’s fourth- biggest automotive market, are bought on credit, according to Maruti Udyog Ltd., the country’s biggest carmaker.

“The availability of credit facilities for the first-time buyer is a major constraint, coupled with the increase in interest rates,” Dev said. The performance of the automobile sector in the first four months of the financial year has been “lower than what we had envisaged.” India’s central bank July 31 ordered banks to curb lending and investment for the third time this year to soak up cash and keep a lid on inflation. The Reserve Bank of India held its benchmark interest rate at a five-year high of 7.75 per cent.

Lending Rates

Commercial banks have increased lending rates by 200 basis points to 250 basis points since December. State Bank of India Ltd., the nation’s biggest commercial bank, said April 7 it will charge its best borrowers 12.75 per cent, the highest rate since April 1999. A basis point is 0.01 percentage point.

Car sales in India have gained in eight of the past 10 years as interest rates halved in the period. Local passenger vehicle sales grew 20 per cent to a record 1.4 million units last year as State Bank of India and ICICI Bank Ltd., the two largest lenders, boosted credit.

Total sales of cars, trucks and two-wheeled vehicles have declined in three of the first four months of the fiscal year that started April. “Domestic demand has been severely impacted by the sharp increase in interest rates,” said Ravi Kant, the managing director of Tata Motors.

Maruti may not be able to maintain its growth rate, Managing Director Jagdish Khattar said in New Delhi today, reiterating what he’d said in July. This was partly because of Maruti’s increased customer base, Khattar said.

Investments needed

General Motors Corp., Suzuki Motor Corp. and other carmakers may spend as much as 640 billion rupees ($16 billion) in India in the next three years, the minister said.

Car sales in India are expected to more than double to 3 million by 2015, according to the Society of Indian Automobile Manufacturers. Indian passenger car sales in the year ended March 31 climbed 22 percent to a record 1.08 million.

India’s automobile industry needs $40 billion of investments in 10 years to meet the target of growing more than four times and creating 25 million jobs, the Society of Indian Automobile Manufacturers said last year, citing the Automotive Mission Plan 2006-2016 drawn up by the industry group. The industry aims to reach a size of $145 billion by 2016.

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