Car sales growth may slow down to 2-4 %

The recurring hikes in interest rates and petrol prices have punctured the growth story of the Indian car industry. Against a 30% growth witnessed in 2010-11 , the car industry is projected to grow at a low single-digit level in 2011-12 .

Auto industry body Society of Indian Automobile Manufacturers (Siam) said a flurry of negatives had pulled down car sales drastically. "Apart from interest rates and the petrol price, inflation has also dampened the sentiments ," S Sandilya, president of Siam, said.

The gloomy outlook prompted Siam to again downwardly revise this year's growth projections for car sales, as part of its quarterly review . "Against the original projection of 16-18 % growth, we now forecast car sales to grow by 2-4 % this fiscal. The car industry is hit by a slowdown and it would take some time before demand picks up again," Sandilya said. Siam had cut down its forecast to 10-12 % in its firstquarter review in July. Indian car sales last grew in single digits in 2008-09 , at 1.4%.

Car sales have been depressed for last many months as RBI's attempt to tame spiralling inflation by raising interest rates has hit vehicle financing rates. Sandilya said interest rate on car financing has gone up by 3.6% since April last year and are currently hovering around the 13% mark.

Companies like Maruti Suzuki , Hyundai and Tata Motors are feeling the heat. Many companies have cut production to fall in line with slow demand. According to analysts, the dearer interest rates have also increased the EMIs on home loans, leading to reduction in disposable incomes. "So, many people have preferred to postpone car purchase to a later time," an analyst with a Mumbai-based brokerage said.

Marketing heads of many top car companies are already complaining of reduced traffic at dealerships. The festival season , where demand usually peaks, is expected to be a moderate affair due to the despondent mood among buyers.