UPDATE 1-India auto industry body lowers FY13 car sales forecast

Tue Jul 10, 2012 4:04am EDT

* Lowers car sales growth f'cast to 9-11 pct from 10-12 pct earlier

* Cuts FY13 commercial vehicles sales f'cast to 6-8 pct

* Higher costs, slower economic growth weigh

* Industry betting on festive season demand

By Anurag Kotoky

NEW DELHI, July 10 (Reuters) - An Indian automobile industry body on Tuesday slightly lowered its car sales growth forecast for the year ending next March, as higher costs and slower economic expansion impinge on demand.

But the Society of Indian Automobile Manufacturers (SIAM) hoped demand would revive later in the year.

Car sales for the current fiscal year are expected to rise 9-11 percent, the group said, lower than the 10-12 percent growth it had forecast in April.

Car makers are struggling to achieve double-digit sales growth targeted by the industry as Asia's third-largest economy grows at its slowest pace in nine years, hurting a sector that has been one of the best performers over the past decade.

The federal budget raised factory gate duty on cars from April 1, pushing up prices, although it did not impose a feared tax on diesel vehicles. Sales of diesel cars have soared in recent months, thanks to government subsidies that make the fuel around 50 percent cheaper than petrol.

Many local carmakers, including Maruti Suzuki, Tata Motors and Toyota Motor's Indian unit have temporarily reduced production in the last few weeks as the slowdown began to bite.

In June, companies sold 155,763 cars, an annual growth of 8.3 percent, but the lowest sales volume since October last year. For the quarter ended June, sales were up just 5.2 percent, far lower than the new annual forecast range.

Industry executives defended the new sales forecast.

"Fuel prices have come down moderately, interest rates are not going up, the government is under tremendous pressure to come up with reforms, we think it is kind of reasonable," SIAM President S. Sandilya told reporters.

Vishnu Mathur, director-general of the industry body, said he expected demand to revive during the festive season that begins in September and peaks in November after the Hindu festival of lights.

The industry body lowered its sales forecast for trucks and buses, expecting it to rise 6-8 percent over the current fiscal year, lower than the 9-11 percent it had predicted in April. It maintained its sales growth forecast of 11-13 percent for two-wheelers.

Breakneck domestic car sales growth over the past few years has attracted the who's who of the world's biggest car makers, including Ford Motor Co and Volkswagen AG to spend billions of dollars setting up factories in the country.

But demand for cars fell for the first time in three years last July and slumped by the most in over a decade in October as high interest rates and rising fuel costs deterred buyers, typically reliant on loans for purchases.

Leading automobile stocks were trading positive. Top carmaker Maruti Suzuki was up 1.2 percent, Mahindra & Mahindra was up 0.6 percent, while Tata Motors gained 2.4 percent in a broader market that was up 0.6 percent.