India set for worst car sales in decade after January plunge

India's once-booming passenger car sector looked set to post its worst annual performance in a decade, an industry group said Monday, after reporting a 12 percent plunge in auto sales in January.

Car sales -- viewed as an important barometer of overall economic health -- slid by 12.45 percent to 173,420 units in January from the same month in 2012, the Society of Indian Automobile Manufacturers (SIAM) said.

"We now think passenger car sales growth for the (2012-13 financial) year will be in negative figures," SIAM deputy director general Sugato Sen told AFP, adding "the last time we had a negative (figure) was in 2002-03".

"The industry is in tough times," Sen said.

India's weak figures come as vehicle sales in China, the world's largest car market, shifts back to higher growth. Passenger vehicle sales surged 48.7 percent to 1.73 million units in January from a year earlier, the China Association of Automobile Manufacturers said late last week.

India's car sales grew by a breakneck 20-to-30 percent in the previous decade -- prompting foreign carmakers such as Ford, Renault-Nissan, GM and other firms -- to make a beeline for the country as they sought to boost sales globally.

But passenger sales growth in India, the sixth-largest car market worldwide, has been in decline since 2010 with the nation's expanding middle classes steering clear of auto showrooms as the economy has slowed.

India, Asia's third-largest economy, is forecast to grow by five to 5.5 percent this financial year -- its weakest pace in a decade.

Increased ownership costs, such as costlier fuel and steep interest rates, have also deterred buyers.

"People aren't getting the right vibes from the economy and are delaying their car purchases," Deepesh Rathore, India-based expert of industry forecasting group IHS Automotive, told AFP.

"Car buying in India is still a very emotional business," he added. "Even if buyers need a car they will probably wait until they feel good about the economic situation."

SIAM had already slashed its passenger car sales growth forecast for the fiscal year to March 31 to zero-to-one percent from an initial 10 to 12 percent.

Sen said there would be no further official revision but added the group did not expect a recovery in car sales in the final financial quarter.

Sales for April to January were down around two percent from the same period a year earlier, Sen said.

Rathore said India's passenger car sector was expected to gain traction in the next financial year, growing by six to seven percent, as long as the rest of the economy also picked up speed.

Total sales of trucks and buses -- another key pointer to economic vitality -- slumped by 9.51 percent to 63,218 units in January from a year ago.

The SIAM official said there was "still major headroom there for growth" in the car sector longer-term thanks to a highly under-penetrated market. Just one in 11 households in cities and one in 50 in rural areas own cars, SIAM said.