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India car sales shrink for first time in decade

India's once red-hot car market shrank for the first time in a decade in the last financial year, underlining the scale of the slowdown in Asia's third-biggest economy.

India's once red-hot car market shrank for the first time in a decade in the last financial year, industry figures showed Wednesday, underlining the scale of the slowdown in Asia's third-biggest economy.

Passenger car sales fell by 6.7 per cent in the financial year to March 2013 to 1.89 million units compared with from 2.03 million the previous year, the Society of Indian Automobile Manufacturers (Siam) said in a statement.

Sales in March alone plunged 22.5 per cent year-on-year, raising questions about huge investment programmes announced by foreign car companies, such as Ford, which are building new manufacturing capacity.

"The basic problem has been the big downturn in the economy and high interest rates. They have knocked sales," Sugato Sen, Siam's deputy director general, said.

Asia's third-largest economy is estimated to have grown by a mere five per cent in the financial year to March 2013, its slowest pace for a decade attributed to low consumer spending and a slump in business investment.

Many blame the left-leaning government led by the Congress party which has presided over a period of high inflation and a string of corruption scandals which have knocked confidence since its reelection in 2009.

The last time annual car sales shrank was in 2002-03, Siam said.

The performance was a far cry from Siam's forecast at the beginning of the last financial year of 10-12 per cent annual growth for 2012-2013.

"These figures have disappointed all our earlier forecasts there has been a reversal in buying behaviour," Mr Sen said.

The gloom represents a turnaround from the scorching growth in most of the years up to 2010-11 when sales expanded 20 to 30 per cent annually, prompting foreign automakers to shift into the nation to offset weakness in developed markets.

Indian car buyers now are being bombarded with "buy now, pay later" offers as sellers battle to boost consumer demand. Other offers to lure buyers back into showrooms include interest-free repayments and discounts of up to 20 per cent.

To reduce inventories, automakers have been shutting production lines, while investment is already slowing, according to industry figures.

Out of the individual companies, passenger sales of India's top carmaker, Japanese-controlled Suzuki Maruti, rose 4.4 per cent to 1.05 million units the last financial year.

French carmaker Renault, which re-entered India's market just two years back, was a rare bright spot selling 52,463 units, a rise of 1,331 per cent helped by its popular $14,300 Duster SUV.

Siam president S Sandilya said the auto body expected car sales to pick up in 2013-2014, growing by 3 to 5 per cent year on year.

"Last year was a bad year, no doubt about that, but we do hope that things will get better with some government initiatives which have been announced to boost growth," Mr Sandilya said.

"Ultimately, with this country's population size (of 1.2 billion people), incomes growing, the low penetration of vehicles in this country the future is very bright for the industry that is a given fact," he said.

Siam says that the number of cars per 1,000 people in India is just 12.


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