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Car sales may slow this year as lending rate increases

Car sales may slow this year as lending rate increases
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First Published: Wed, Apr 11 2007. 03 04 PM IST
Updated: Wed, Apr 11 2007. 03 04 PM IST
By Santanu Choudhury/Bloomberg
New Delhi: India’s passenger car sales may slow this year as high lending rates lead customers to postpone purchases in Asia’s fourth-biggest automobile market.
Car sales rose 2.9% in March, the slowest gain in 13 months, the Society of Indian Automobile Manufacturers said on 11 April. Sales totaled 114,195 vehicles, compared with 110,978 a year earlier. Sales in the fiscal year ended 31 March rose 22% to a record 1.08 million units.
The monthly growth slowed because of a high sales base a year earlier and increased lending rates by the central bank, said Kalpesh Parekh, head of institutional sales at ASK-Raymond James & Associates, a Mumbai brokerage. The Reserve Bank of India on 30 March raised key loan rates and tightened lending rules to curb inflation in the world’s second-fastest growing major economy.
“Customers, especially of small cars, could defer their purchases at least for the next three or four months till some clarity emerges on the interest rate front,” Parekh said in a phone interview. Annual growth in car sales may slow to about 12% this fiscal year, he said.
The central bank increased the cash reserve ratio, or the amount of cash lenders must set aside against deposits, for the third time since December, and increased the benchmark overnight lending rate for the sixth time in 15 months, to a 4 1/2 year high of 7.75%.
Customers Waiting
“People are holding on to their buying decisions after the spate of rate increases,” said Arvind Saxena, vice president of sales at the local unit of South Korea’s Hyundai Motor Co., in a phone interview.
Hyundai Motor India Ltd, the nation’s second-biggest carmaker, makes models such as the Santro and Getz at a factory outside the southern city of Chennai.
Car sales in March of last year increased 24% from a year earlier, as customers postponed their purchases the preceding month in anticipation of a tax cut on small cars.
The government lowered the tax on cars of up to 4 meters in length from 1 March, 2006, to 16% from 24%. It included cars with gasoline engine capacities of up to 1.2 liters and diesel engines of as much as 1.4 liters. Small cars make up more than two-thirds of the cars sold in India.
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First Published: Wed, Apr 11 2007. 03 04 PM IST
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