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Rate hikes, fuel costs hit car sales

The small car segment has been hit the hardest by the fuel price hike and interest rates increase as customers of this segment are mostly first-time buyers, who have postponed purchases.

twitter-logoPTI | June 1, 2011 | Updated 18:22 IST

Hit by spikes in fuel prices and interest rates, car sales in the domestic market slowed down considerably in May with auto makers stating that the industry is in for a tough summer.

While market leader Maruti Suzuki India (MSI) reported a growth of only 3.9 per cent in sales in the domestic market, rival Hyundai Motor India Ltd (HMIL) posted a 14.62 per cent increase. Tata Motors' domestic passenger vehicle sales during the month fell by 9 per cent.

MSI sold 93,519 units in May this year as against 90,041 units in the same month last year, while HMIL sold 31,123 units as compared to 27,151 units last year. Tata Motors' passenger vehicle sales in May stood at 19,401 units, down from 21,324 units in the same month last year.

The slow growth seen by the major car makers in May is in contrast to the 29.73 per cent jump witnessed in the last fiscal in the domestic car market to touch 19,82,702 units.

Auto makers attributed the slowdown in car sales mainly to the hike of Rs 5 per litre in petrol price during the month and also to the rising interest rates on vehicle finance.

"Our past experience shows that whenever there has been a fuel price hike, it takes about 6-8 weeks for customers to come back to buy cars after postponing purchase their decision. This time around, the price hike has been so steep that we are not sure when will they return," said MSI Managing Executive Officer (Marketing & Sales) Mayank Pareek.

He said the small car segment is hit the hardest by the fuel price hike and interest rates increase as customers of this segment are mostly first-time buyers, who have postponed purchases.

MSI's mainstay A2 segment (comprising compact cars Alto, WagonR, Estilo, Swift, A-Star and Ritz) witnessed a 2.6 per cent decline in sales to 61,048 units in May this year from 62,679 units in the same month last year.

Pareek said while petrol price has now jumped to around Rs 64 per litre in Delhi from about Rs 48 per litre in April, interest rates have also touched nearly 12 per cent from about 9 per cent in April.

"We have said in the past that sales will slow down and the present circumstances point to a tough summer for the industry," he said.

Although HMIL saw an increase in its domestic sales, company Director (Marketing and Sales) Arvind Saxena said: "The market has slowed down considerably after the first quarter of the year because of increasing interest rates and rising fuel prices among other factors".

Other car manufacturers also did not fare well during May as sales marginally increased. General Motors India reported 1.3 per cent increase in sales in May, 2011 at 8,329 units as compared to the same month last year.

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