Demand drops as higher lending rates slow vehicle sales growth

Demand drops as higher lending rates slow vehicle sales growth
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First Published: Fri, Jun 08 2007. 10 03 PM IST
Updated: Fri, Jun 08 2007. 10 03 PM IST
New Delhi: Car sales growth slowed in May from a year-ago period as higher lending rates curbed demand for automobiles. Vehicle sales grew 9.1% last month to 96,922 units, compared with a 30% increase a year earlier, according to data released on Friday by the Society of Indian Automobile Manufacturers. Sales rose 11% in April from a year earlier.
Automobile sales growth may slow this year as benchmark interest rates at a five-year high deter consumers.
Indian motorcycle makers announced production cuts on Thursday on waning demand and expectations of lower sales during the monsoon season that started this month.
Some “car companies may cut production due to lower demand,” said Soumendra Nath Lahiri, who helps manage $3.9 billion of stocks at DSP Merrill Lynch Investment Management in Mumbai.
Lahiri expects car sales to grow between 14% and 15% this year. They rose 22% to a record 1.08 million units in the year ended 31 March.
Commercial banks have increased lending rates by between 200 and 250 basis points since December. State Bank, India’s biggest commercial bank, said on 7 April it will charge its best borrowers 12.75%, the highest rate since April 1999.
GE Money, the consumer finance division of General Electric Co., stopped advancing new loans for purchasing motorcycles and scooters as it wants to “concentrate resources on high growth and high profitability businesses” in India, the company said in a statement on Thursday.
Almost three-quarters of cars sold in India, Asia’s fourth-biggest automotive market, are bought on credit, according to carmaker Maruti Udyog Ltd.
“There is a slowdown in demand, but I expect it to be a temporary thing,” Lahiri said.
Economic expansion, improvement of roads and rising incomes are expected to help triple sales to three million units annually by 2015, according to the society.
Maruti, maker of half the cars sold in India, posted a 9% increase in May auto sales.
Its overall vehicle sales, including exports, grew 11%, the slowest pace in 10 months. Maruti is a unit of Suzuki Motor Corp.
Tata Motors’ sales fell 6.8% to 14,217 and Ford’s fell 4.1%, according to the data.
Tata is India’s third-largest carmaker. The automaker has already cut production of trucks this year, according to Debasis Ray, a company spokesman.
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First Published: Fri, Jun 08 2007. 10 03 PM IST
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