Car sales up 7 per cent; Companies may 'just break even' in FY12

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India's carmakers may just break even in the fiscal year that ends in March, an industry body warned on Thursday and said it would cut its sales outlook for the year, as firms struggle with sluggish demand on rising input costs and high interest rates.

Rising finance costs and increasing prices have deterred buyers in Asia's third-largest economy in recent months, hurting carmakers that cheered a 30 per cent rise in sales over the previous financial year.

"We will revise our (sales growth) estimates downwards," said Sugato Sen, senior director of the Society of Indian Automobile Manufacturers.

The current estimate is 2-4 per cent. I don't see that happening. We may just break even," he said adding that the revised outlook would be announced in January.

Sales rose 7 per cent in November from the same month last year, SIAM said, but total sales over the first eight months of the fiscal year that began in April are down 3.5 per cent from a year previously.

Higher prices of commodities such as steel, aluminium, plastics and rubber as well as fuel prices have pushed up costs and dented demand.

"Simply breaking even is definitely lower than the market had expected earlier in the year," said Yaresh Kothari, auto analyst at Mumbai-based Angel Broking.

"Maruti's strike is still distorting the numbers a little, and adding to the undeniable slowdown in the market."

The rise in November sales, mainly due to a low comparison base, ended four consecutive months of falling volumes that culminated in the biggest drop in over a decade in October.

"The base was low specifically for passenger cars, which created quantitative growth," said Sen. "There is some revival in demand. But this is not enough to turn around the industry."

MARUTI 'NOT STABILISED'

Indian automakers sold 171,131 cars last month, according to SIAM data. Before July, Indian car sales had risen for three straight years.

The industry body has already cut its growth forecast twice this year, slashing it to 2-4 percent in October from its initial forecast of 16 to 18 percent.

December sales are typically lower than those seen in November, Sen said, adding that SIAM expected sales to improve in the first few months of 2012.

The market is driven by a swelling aspirational middle class that mostly relies on bank financing for purchases. The Reserve Bank of India has raised interest rates 13 times since March 2010, driving up the cost of car loans.

Maruti Suzuki, the country's top automaker, said last week its November sales were down 18.5 percent, as it continues to rebound from months of labour unrest that crippled production and slashed its market share.

Maruti, 54.2-per cent owned by Japan's Suzuki Motor Corp (7269.T), may see a fall in sales volumes over the fiscal year to March, its chairman said last month. "Maruti still has not stablilised," said Sen.

Rivals Tata Motors and Mahindra & Mahindra have seen a sales boost as Maruti stutters, with Tata sales up 41 per cent in November and Mahindra jumping 53 per cent, according to company data.

All three domestic firms reported a fall in profit in the quarter to September on sluggish sales and the negative impact of a weakened rupee.

Sales of commercial vehicles, a key indicator of the country's economic activity, rose 35 per cent to 66,264 in November, SIAM said.

Sales of motorcycles, used as a family vehicle by millions of Indians, rose 22.7 per cent to 869,070 vehicles.