New Delhi / Mumbai: Sales of automobiles declined 14.4% in October as Indian consumers, faced with high borrowing costs, put off purchases in what is normally a strong season thanks to various festivals.

The weak sales performance, the worst in eight years, came in a month that is part of festival and marriage gifting season, and traditionally counts for up to one-sixth of annual vehicle sales in India.

As a result, manufacturers, who had already trimmed production by 12.3% for October and are suspending output on a few days in November, are expected to further slow manufacturing in coming weeks.

India’s auto industry accounts for 5% of the country’s national income and 30% of its manufacturing output, according to the ministry of heavy industry.

Also See Declining Sales (Graphic)

The October data also made it clear that declining auto sales—now in three of the last four months—were here to stay and the weakness would continue in the relatively slow November-December months as well.

“The next two months are going to be tough," conceded Mayank Pareek, executive officer, sales and marketing, Maruti Suzuki India Ltd, the country’s largest car maker.

November-December are typically slow for the industry, as buyers, loath to be saddled with models from that year, wait for the new year before purchasing cars.

Resale values are typically pegged to the year of production and can vary significantly even for vehicles that are registered a few days apart if they fall in different years.

Car sales in October fell to 98,900 from 105,877, a contraction of 6.6%, according to data released on Monday by the Society of Indian Automobile Manufacturers, or Siam, an industry group.

“At an interest rate of 14-15%, nobody is looking to buy cars," said Ramnath S., director research at brokerage, IDFC-SSKI Securities Ltd. “It’s too early to assume that the cut in interest rates is going to lead to a change in demand."

Banks and other financiers finance about 75% of India’s passenger vehicles and just above 50% of two-wheelers. Cuts in mandated amounts that banks have to keep with the central bank—referred to as cash reserve ratio and statutory liquidity ratio—have thus far not translated into a reduction in the interest rates charged by banks on auto loans.

According to Monday’s data, truck makers were the worst hit, selling 35.95% less vehicles in October compared with sales in the same period last year. Sales of passenger vehicles, including cars, utility vehicles, and vans, declined 9.05% and two-wheeler companies sold 14.52% less motorcycles, scooters and mopeds in October.

The October numbers are indicative of a correction in inventories happening at dealerships, said Dilip Chenoy, director general, Siam, which counts sales as the number of vehicles despatched by automakers to dealers and not end-customer sales.

“The biggest challenge today is liquidity. We need to get additional liquidity into the market," said Chenoy. “We don’t want another month like October."

In anticipation of increased demand in the festive month of October, auto companies had piled on inventories with dealers taking sales up 12.11% in September.

But the decline in sales and the resulting inventory pile-up in October has already prompted some auto makers to announce production cuts last week and industry executives hinted that more would be announced in the coming weeks.

In November and December, Maruti, for instance, plans to step up its marketing efforts and target government employees, rural customers and corporate clients in particular.

Hyundai Motor India Ltd has “started feeling the pressure now," after months of beating the slowing growth in the auto industry, a senior executive said.

“As we are nearing the end of the year, we don’t want to be saddled up with lot of stocks at our end or dealers’ end. Though there are no immediate plans of rationalizing production, we are monitoring the situation on a daily basis," added Ashok Jha, president of the Hyundai arm.

One bright spot is that Siam’s October data showed auto exports were holding up well—with Hyundai Motor, TVS Motor Co. Ltd and Bajaj Auto Ltd reporting brisk growth in such sales.

Total exports grew 41.16% in the month. With domestic demand expected to be subdued in the coming months, export growth will help them balance this out, according to Vaishali Jajoo, an analyst with Angel Broking Ltd.

Exports by Hyundai grew 168% in October from the year earlier to 26,651 cars, but with slowing demand in Europe targets were being lowered.

“We shall cut back the targeted 2.7 lakh (exports for the calendar year) by approximately 10,000 to 15,000. We have yet to decide on the exact numbers," the firm’s president Jha said.

Meanwhile, vendors of auto components, too, said they don’t see the situation improving in the next two months. Demand will remain sluggish, predicts Deepak Jain, executive director, Lumax Industries Ltd.

Slammed by a 50.2% decline in sales in October, Ashok Leyland Ltd, the largest commercial vehicle company by sales, has already said it will halve the number of days its factories work to three a week.

Tata Motors Ltd announced temporary closings at its Lucknow and Pune facilities.

Debasis Ray, a company spokesperson told Mint the company would shut its Lucknow commercial vehicle factory from 10 November to 15 November and halt production between 21 November and 26 November at its Pune factory. Tata Motors’ passenger vehicle plants are operating normally.

Subramaniam Sharma of Bloomberg contributed to this story.