New Delhi: Car sales in India rose an annual 2.5% in May, climbing for the fourth month, as aggressive rate cuts and stimulus packages helped, but the momentum is set to ease, an industry body said on Monday.
Borrowing costs still remain high and the effect of government support measures such as tax cuts are waning, Sugato Sen, senior director at the Society of Indian Automobile Manufacturers (SIAM) said.
“The fundamentals are not improving. Industry is feeling that the effects of stimulus is fading to some extent,” he told reporters. “You need more (stimulus).”
Companies sold 113,490 cars in May, compared with 110,745 cars a year ago, data from SIAM showed.
Sales of trucks and buses, which are more dependent on the pace of economic activity, fell for a 10th straight month, dropping 14.8% in May from a year earlier to 30,800 units.
“June will be worse than May, based on the feedback we are getting,” Sen said, referring to passenger vehicles that include cars and utility vehicles.
Passenger vehicle sales fell 0.8% from a year earlier to 140,823 units in May, the data showed.
India’s economy grew 6.7% in the fiscal year ended March, its weakest pace in six years, hurt by the global economic crisis. The Reserve Bank of India (RBI) expects growth to further slow down to 6% in 2009-10.
Manufacturing was weak in the March quarter, posting a 1.4% contraction after having risen 0.9% in the December quarter.
The world automobile industry has been going through a rough patch, with Japan’s industry-wide auto sales falling 19 percent in May from a year earlier.
In the United States, May auto sales fell 34% from a year earlier as Chrysler and General Motors battles bankruptcy.
Car sales in India, dominated by Maruti Suzuki, 54.2% owned by Japan’s Suzuki Motor Corp, have been rising since February after the government reduced factory-gate duties and also initiated measures to reduce interest rates.
Maruti, which controls 1 in 2 cars sold in India, earlier reported its May sales rose 15.8 % from a year ago to 79,872 but Tata Motors’ passenger vehicles sales fell 16%.
Analysts expect India’s economy will pick up in the second half of the year, with Prime Minister Manmohan Singh’s coalition that won a second five-year term in May expected to announce more spending to speed up growth.
Motorcycle sales rose 12.3% to 576,541 units in May, powered by Hero Honda Motors, owned 26% by Japan’s Honda Motor Corp, which rode on strong demand from rural and semi-urban areas.
The BSE Auto Index has more than doubled so far in 2009 while the main index has risen more than 50%.
“The auto stocks were the most beaten down last year and the recovery has also been faster for them,” said Vaishali Jajoo, auto analyst with Angel Broking.
“With sales growing every month for the last four months, people are expecting a recovery in the longer term. A dip for one or two months will not make much of a difference.”
She said sales in June and July were usually low because of monsoon rains and fewer marriages.