Indian carmakers post lacklustre May sales as economy slows

India's top car makers posted lacklustre sales in May as an excise tax hike and rising fuel prices hit demand, casting more gloom over the country's economic outlook.

Car makers are struggling to hit a sales target set by the local industry body as India's economy grows at the slowest pace in nine years, hurting an industry that has been one of the country's best performers over the past decade.

"Things are not looking good," said Sugato Sen, senior director of the Society of Indian Automobile Manufacturers (SIAM), which has forecast 10 to 12 per cent sales growth in the fiscal year to March 2013. "We did not expect that sales would be so low. The economic sentiment is not positive."

Maruti Suzuki, the biggest car maker with a 45 per cent market share, said passenger car sales fell 5.9 per cent from a year earlier. Tata Motors, the country's No.3, posted a 6 per cent increase.

Ford, which manufactures cars in India, said its sales in the country fell 14 per cent. General Motors reported a 27 per cent slide in sales. TVS Motor, the country's third-largest two-wheeler manufacturer, said its sales declined 4.8 per cent.

The government raised petrol prices by around 11 per cent last month, hurting car makers already reeling from an excise hike announced in the federal budget in March and a weakening of the rupee that is jacking up import costs.

India's economy grew 5.3 per cent in the first three months of 2012, compared with 9.2 per cent a year earlier, with the manufacturing sector contracting 0.3 per cent.

Car sales in the country rose 30 percent in 2010/11, attracting billions of dollars in investment from automakers such as Ford, Nissan and Renault But a slowing economy dragged sales growth down to 2.2 percent in the last fiscal year.

Mahindra & Mahindra, the country's top utility vehicles maker, said this week that due to "continued weakness in the domestic macro environment, the near-term outlook for the economy is quite challenging."

Mahindra's car sales rose 27 per cent in May, mainly thanks to its all-diesel range. Demand for diesel cars has doubled over the past year to around 40 per cent of sales due to subsidies that make the fuel around half the price of petrol.

Copyright @ Thomson Reuters 2012