May car sales growth slowest in 2-yrs, demand to moderate

Car sales rose 7% in May from a year earlier, their slowest pace of growth in two years, as higher fuel prices, interest rates and vehicle costs crimped demand in the world's second-fastest growing auto market.

Indian automakers sold 158,817 cars in May, compared with 148,425 vehicles a year earlier, data from the Society of Indian Automobile Manufacturers (SIAM) released on Thursday showed.

The growth is the slowest since May 2009, when car sales rose 2.77%. They had jumped 30% last May.

"If you look at the numbers now, looks like (reaching fiscal 2012 targets) will be difficult," Sugato Sen, senior director at the Society of Indian Automobile Manufacturers, told reporters.

SIAM expects local auto sales growth to halve to 12-15% this fiscal year ending March , after it grew a record 30% in 2010 to 1.98 million units, driven by demand from a growing middle class in Asia's third-largest economy, easier access to loans and a wider choice of models.

Sales of trucks and buses, a key pointer to economic activity, rose 16.16 percent from a year earlier to 56,314 units in May, SIAM said.

Petrol prices in India were raised by a record 8.6 percent in May, fuelling concerns about a slowdown in demand for passenger vehicles, with another likely increase in interest rates also expected to curb buying.

The RBI, which has raised interest rates nine times since mid-March 2010, is expected to raise them again on June 16 when it reviews policy.

Earlier this month, India's largest automaker, Maruti Suzuki, posted its slowest growth rate in more than two years, with a 1.9% rise in total sales to 104,073 units.

"Interest rate is going up, availability of financing is down, prices are rising and sentiment is not very positive among customers. All this put together is impacting final sales," Sen said.

Indian automakers have also expressed worries about rising commodity prices, with Maruti Suzuki, Tata Motors and Mahindra and Mahindra having raised prices on vehicles by an average 1.5 to 2% this year.

Shares of Maruti Suzuki were down 0.83% by 10.25 am (0455 GMT), while those of Tata Motors fell 1.6%.