Higher Fuel Cost, Rupee Fall Lead To 5.6% Drop In Passenger Vehicle Sales

Domestic passenger vehicle sales fell 5.6 per cent in September from a year ago, data from the Society of Indian Automobile Manufacturers (SIAM) showed on Friday, with demand hurt by rising fuel prices and interest rates.

Passenger vehicle sales stood at 2,92,658 units in September, down from 3,10,041 units a year earlier. Rising crude oil prices, higher interest rates and a much weaker rupee that has lifted prices of imported vehicles, are weighing on consumer sentiment.

This is the first time that year-on-year passenger vehicle sales have fallen in three consecutive months since April 2014, when the economy had slowed and the rupee had also weakened.

"Inventories have increased at dealer level and companies are hoping that these would be cleared in the festive season," Rajan Wadhera, president of the Society of Indian Automobile Manufacturers (SIAM), told reporters.

India is one of the world's fastest growing passenger car markets and is expected to become the world's No. 3 market in terms of sales by 2020, up from fifth place today.

Most of the automakers are building inventories ahead of the festive season beginning this month and are offering discounts to attract customers.

Retail petrol prices have risen 17.7 per cent in Delhi and diesel prices are up 24.99 per cent this year - denting domestic demand for consumer durables and cars.

"Demand from urban consumers is stable but it is weak from rural consumers," said Sumit Walvekar, senior general manager at Chowgule Industries in the western state of Maharashtra, a dealer for top-selling carmaker Maruti Suzuki.

There are also early signs of a shift in preferences towards cars that are more fuel efficient or that can run on alternative fuel, Mr Walvekar said.

Auto research firm IHS Markit has trimmed its sales forecast for passenger vehicles for the remaining three months of the year by 0.5 per cent or 20,000 vehicles, in light of current economic conditions.

"We expect for the remaining year growth will slow relative to the first half...as higher oil prices, higher inflation have already started putting pressure on the economy," said Puneet Gupta, associate director at IHS.