Auto industry body cuts FY13 forecast even as car sales grow 8.3% in June

India’s automobile industry is headed for rough times, with the leading industry body cutting its passenger car sales forecast for the current fiscal.

“Growth is moderating in the auto sector,” cautioned S. Sandilya, President of the Society of Indian Automobile Manufactuters (SIAM), which on Tuesday cut its car sales projection for FY-13 to 9-10 per cent from the earlier 10-12 per cent.

Passenger vehicle sales in India rose an annual 11 per cent in June, according to data released Tuesday by SIAM. Overall domestic growth in the auto sector during April through 2012 was 9.94 per cent.

Sandilya, however, also tried to strike an optimistic note, saying “Growth will be reasonable, we are still positive.”

“The mood in the industry is of wait-and-watch,” he added.

Car sales grew 8.3 per cent in June, the eighth consecutive monthly increase, and more than the 2.8 per cent in May, at a time when the auto industry is struggling with declining sales, particularly of petrol driven cars, even as demand for cars that run on the cheaper diesel fuel has surged.

Commercial vehicle sales grew 5 per cent last month, a slower pace of growth than the 9.1 per cent in May, suggesting a reluctance on the part of transporters to invest in fleets as the economy has slowed. Three wheelers, which are used both for passenger and commercial purposes, also registered a weak 4 per cent growth in June.

India's car sales have been falling as the industry has been hit by a high interest rate regime, rising fuel prices and an increase in excise duty excise hike.

Car sales grew a mere 2.2 per cent in the financial year ending March 2012. To counter the slowdown, Indian carmakers are rushing to increase diesel-run capacity after a series of petrol price hikes have driven customers to the cheaper fuel. Diesel, which is heavily subsidized by the Indian government to keep inflation under control, costs almost 40 per cent less than petrol at the pump,

India’s economic growth slowed to 6.5 per cent in fiscal 2012, and to a nine-year low of 5.3 per cent in the March quarter, due largely to the combined effects of the euro zone crisis, a drop in domestic demand, high interest rates that have curbed industrial investments, and a perceived lack of economic policy reforms from the current governments.

Global investors are also increasingly wary of recent policy amendments that could increase the government’s oversight of foreign investments as well as significantly increase taxes on certain overseas deals.